The Croissant Hypothesis
First Published Monday, 20th July 2009 09:50 pm from Fidessa : Fidessa
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It was interesting to read Jeremy Grant's piece in
today's FT about the outage at NYSE Euronext yesterday. Somewhat
counter-intuitively volume didn't move to the MTFs but, according
to Jeremy, traders simply "munched on their croissants" whilst
the techs fixed the problem. This outage highlighted again the
difference between the US and Europe where US volumes are much
more evenly spread between venues. What this means is that
traders are far less dependent upon the concept of a "primary"
exchange for a reference price. Some argue that this is the fault
of the smart order routing (SOR) technology as it is unable to
kick off its decision-making logic without first receiving a
reference price from a primary exchange. Others say that the lack
of a US style consolidated tape is the culprit. Both of these
points are true but the real problem is that market sentiment
still seems to favour doing nothing if the primary market is
down. In a similar fashion, most SOR technology will favour the
primary venue over MTFs when that market is in its auction phase
as this is the behaviour that market participants
want. So, it would seem that the challenge for MTFs is
not to get technology vendors to make their SOR kit work
differently, but to get the wider trading community to be more
accepting of using their platforms when the primary market is
down. As fragmentation continues to rise across Europe the whole
idea of a primary market will increasingly be called into
question and it will be interesting to see when and where the
tipping point for this really is.
to croissants, looking forward to TradeTech Paris this week.
Please come by the Fidessa stand (no. 46) for a chat if any of
you are going to be there too.