Those of you that have followed this blog know that I

have commented a few times on the impact on fragmentation when a

primary market has been unavailable (see the href="http://fragmentation.fidessa.com/2009/04/21/the-croissant-hypothesis/"

target="_blank">croissant hypothesis and the href="http://fragmentation.fidessa.com/2009/10/16/the-bacon-roll-theory-%E2%80%93-16-october-2009/"

target="_blank">bacon roll theory). Well, yesterday

it was the turn of SIX Group to run the experiment. Due to a

technical glitch, SIX was unable to provide prices on major Swiss

stocks for a few hours yesterday afternoon. A quick spin through

the Fragulator shows some intriguing results that seem to counter

the conclusions that were drawn before.

Total

average volume of SMI stocks was around 111,000 trades on the 3

days prior to the problem. This fell by around 30% yesterday due

to the outage, but the interesting bit is how the remaining

volume traded. Chi-X, BATS, Turquoise and Nasdaq Europe all

traded the same or greater volumes than they had previously

despite the fact that the primary market was unavailable. This

seems to counter the view that traders ignore a stock altogether

when primary markets are down and, as a result, price formation

happily took place between the MTFs only without the need for a

"parent" exchange. What this shows is that, for Swiss stocks at

least, the MTFs are now regarded as completely legitimate venues

in terms of providing credible price formation even when the

primary is down.

It's not all going the MTFs

way though, as further analysis shows that OTC trading increased

by 46% yesterday when compared with the average of the three days

before. OTC trading, therefore, was actually an even bigger

winner than the MTF community as a result of the SIX outage.

The MTFs that find ways to attract this

volume onto their own dark segments could be the liquidity

winners of the future.