The Emmental Enigma
First Published Saturday, 14th November 2009 03:06 pm from Fidessa : Fidessa
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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.
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.