Last week was a good week for fragmentation. BATS

continues to build on the impressive start it made last year and

it was great to see that volumes at Turquoise are starting to get

back to the levels (over 6% of the FTSE 100) it enjoyed before

the end of the market making obligations. The last 6 weeks have

also seen impressive growth in volumes at Chi-X. The fact that

all of the

href="http://fragmentation.fidessa.com/stats/"

target="_blank">top twenty most fragmented stocks

have an FFI of around 2 or above is further evidence of the

increasing rate of fragmentation.

Buried

amongst all this data I was intrigued to see that fragmentation

of FTSE 250 stocks seems to be accelerating, too.

href="http://fragmentation.fidessa.com/wp-content/uploads/ftse-250-end-8-may1.png"> class="alignleft size-full wp-image-622" title="FTSE 250 FFI"

src="http://fragmentation.fidessa.com/wp-content/uploads/ftse-250-end-8-may1.png"

alt="" width="350" height="150" />

This is especially significant as the small/mid-tier

broker dealers (many of whom tend to specialise in these stocks)

have largely been able to watch fragmentation from the side

lines. It looks as if this is changing now and so these firms may

need to be beefing up their SOR capabilities quicker than they

thought.

Having said all

of this, the big primary venues have now had the chance to

assimilate all the different initiatives underway within the MTF

community and so should have a good grasp of what works and why.

In this regard there may, paradoxically, be an advantage in going

last especially as the European trading landscape is now in much

better focus. Nowhere is this more true than in trading dark

liquidity. The MTF community has been working hard on creating a

variety of different dark pools and the announcements of "point

to point" sharing of dark liquidity by the large broker dealers

seem more opportunistic than strategic. To my mind, the stage is

set for an MTF, broker dealer or a primary venue to totally

dominate this space. It is estimated that anywhere up to half of

European liquidity is traded away from lit platforms and so the

rewards for success in this area look pretty significant. Maybe

what we have seen so far, then, has just been the prelude to the

real battle for European liquidity.