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Should I Stay or Should I Go?

Few can have missed the furore over the LSE outage yesterday.

During the outage the MTFs made repeated attempts to convince the trading community that it should go and trade on them whilst the LSE was unavailable. The chart below, however, shows that they were pretty unsuccessful in this and that, instead, traders simply stayed away from the market altogether until trading resumed. This shows that, in London at least, traders are still reluctant to use MTFs without the comfort of knowing that the primary market is open at the same time. Market makers, too, are reluctant to make prices when the primary is down and so this further encouraged traders to stay at home rather than go and play on the MTFs.

Another factor in play this time, though, was technology. The majority of smart routers are (correctly) configured so as to direct all orders to a primary market when it is in auction. During yesterday’s glitch, however, the LSE put its market into auction which had the effect of creating an “artificial auction” that sucked up available liquidity from smart routers. This then led to the huge spike in trading on the LSE when it reopened at 2 pm. The net result was that LSE market share jumped by 7% compared with its daily average for the rest of November. This last point highlights, yet again, the ironic interplay in the post-MiFID world whereby the MTF community is still dependent on the LSE being open in order to try and increase its own share of UK stock trading.

Finally, as some of you may have guessed, it’s been “Clash week” here at Fidessa Towers. For those that don’t know, The Clash were pioneers of punk rock in London during the 70s. Their aim, together with other similar bands, was to disrupt the hegemony of the established music industry. Only time will tell whether the MTFs will be as successful in changing the face of European equities trading.

4 Responses to “Should I Stay or Should I Go?”
  1. D Glover says:

    Instances like this certainly add to the argument for the need to create an american style consolidated best bid-offer.

  2. Iain Thomson says:

    We’ve spent some time trying to get our heads around the whole MiFID issue from a retail perspective. This gave me all the info I need in about 15 minutes! Great site.

  3. Anon says:

    I have been using the Fragulator and found this to be a valuable resource to get a quick picture of where trading is taking place!

    I have a question about the way you have chosen to breakdown the OTC data. Currently, you have LSE and PLUS listed under OTC for a range of flags including NT (which I understand to be negotiated trades). I wondered whether it would be more appropriate for these to be classified as on-exchange under ‘Dark’ rather than OTC?

    The reason for my question is that negotiated trades are conducted away from the central trading mechanism, but are bound by the rules of a regulated market or MTF. For this reason we consider them to be on-exchange under a pre-trade transparency waiver (i.e. dark) rather than OTC.

    I am less familiar with some of the other flags that make up the LSE “OTC” breakdown. However, I think it is right to have “LSE xoff” under the OTC classification.

    I would be more than happy to discuss this with you further.

  4. Dmitri says:

    NEURO should have been included for completeness…

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