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Should I Stay or Should I Go? - 27 November 2009

Fidessa : Fidessa - 1st January 1970

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Few can have missed the furore over the LSE outage yesterday.

During the outage the MTFs made repeated attempts to convince the trading community that it should go and trade on them whilst the LSE was unavailable. The chart below, however, shows that they were pretty unsuccessful in this and that, instead, traders simply stayed away from the market altogether until trading resumed. This shows that, in London at least, traders are still reluctant to use MTFs without the comfort of knowing that the primary market is open at the same time. Market makers, too, are reluctant to make prices when the primary is down and so this further encouraged traders to stay at home rather than go and play on the MTFs.

Another factor in play this time, though, was technology. The majority of smart routers are (correctly) configured so as to direct all orders to a primary market when it is in auction. During yesterday's glitch, however, the LSE put its market into auction which had the effect of creating an "artificial auction" that sucked up available liquidity from smart routers. This then led to the huge spike in trading on the LSE when it reopened at 2 pm. The net result was that LSE market share jumped by 7% compared with its daily average for the rest of November. This last point highlights, yet again, the ironic interplay in the post-MiFID world whereby the MTF community is still dependent on the LSE being open in order to try and increase its own share of UK stock trading.

Finally, as some of you may have guessed, it's been "Clash week" here at Fidessa Towers. For those that don't know, The Clash were pioneers of punk rock in London during the 70s. Their aim, together with other similar bands, was to disrupt the hegemony of the established music industry. Only time will tell whether the MTFs will be as successful in changing the face of European equities trading.