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Less haste more speed

Quite a lot has been written over recent weeks about the London Stock Exchange’s market share and last week helped to clarify some of the issues. Prior to this period the LSE had enjoyed a temporary boost in volumes driven by the triple witching hour on March 19th when many traders go to the LSE in order to cover their equity options positions. But this was just a small kink in the underlying trend which shows the fragmentation of FTSE 100 stocks seemingly on a never ending incline. The winners last week were, of course, Chi-X (26.5%) but BATS Europe is also steadily moving up the rankings and accounted for just over 10% of the FTSE 100.


To be fair, it probably makes sense to add the Turquoise volume back to the LSE as they are now its majority owners but, nevertheless, the trend appears to be almost irreversible. Further analysis, however, shows that this might not be the case. Instead of looking at actual market share take a look at average trade size and value. Last week both the LSE and Chi-X executed nearly the same number of trades in FTSE 100 stocks (just over 1.1 million each) yet the average trade size and value of the LSE trades was over twice those on Chi-X. The difference in trade size was even greater between the LSE and BATS Europe.


The newer venues appear to have been successful in attracting smaller order sizes which, typically, are associated with larger orders that have been sliced and diced algorithmically or generated by the high frequency players. Given that the average order size in FTSE 100 stocks has fallen steadily, it looks like Chi-X and BATS have been especially successful in appealing to these market participants. To play in this game, of course, you need to be able to offer a very fast matching platform. It makes perfect sense, then, that the LSE is going full steam ahead to implement its new low-latency platform, Millennium Exchange, in September.


On a separate note, I took part in a lively debate at Q15’s London Service Providers’ Quorum last week. One of the big themes for discussion was the continuing dissatisfaction amongst buy-side firms trying to achieve best execution within Europe’s fragmented markets. Seems there’s still a way to go yet in meeting this challenge.

3 Responses to “Less haste more speed”
  1. Christopher Basnett, RBS says:

    Is the comparison of average trade size and value on a like for like basis (ie. continuous trading only) or does it include the LSE auction periods as well?

  2. Steve Grob says:

    That’s a good question. In fact we do also include the auction volumes in the LSE figures and so the comparison with the MTFs is not on “a like for like” basis and so favours the LSE. On the other hand the auction volumes are “real” and so we generally include them in comparisons. It’s an interesting point though and one I wrote about a while back. Do you think it would be fairer to exclude the auction volumes when making such comparisons?

  3. Christopher Basnett says:

    Thanks for responding Steve. You are right about the auction volumes being ‘real’ but if you are comparing the type of order flow between venues I think it does not give a true reflection of the business happening throughout the day, particularly with the auction volume representing approx 25% (according to BATS data).

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