Two events this week crystallised the need for better

pre- and post-trade information.

Firstly,

href="http://www.finextra.com/news/fullstory.aspx?newsitemid=20848"

target="_blank">BATS joined ranks with Chi-X to question the

LSE's decision to set its market to auction mode during

its recent outage.

In a related title="BATS white paper"

href="http://www.batstrading.co.uk/resources/participant_resources/LSE_outage_whitepaper.pdf"

target="_blank">white paper on the subject BATS also

claims that "it is questionable whether the market was

orderly on the LSE given publication of data which did not

represent legitimate trading interest or available

liquidity". It would be interesting to find out,

therefore, why the LSE decided to put its market into auction

this time rather than suspending it altogether (as it has when it

has suffered previous outages). But, whatever the LSE's

motivations were, you only have to look at the widening gulf in

fragmentation between the LSE and other European primaries to see

how critical the battle for liquidity in London has now

become.

The crucial issue, however, is

agreeing a mechanism to provide the market with a pre-trade tape

of prices that has an agreed "market outage

protocol", an agreed standard for deciding on

fungibility, and a means of determining which venues to include

or exclude from the tape. Without this it would seem that

effective price formation when a primary market is down is still

some way off. This is especially the case when there is

uncertainty over if or when the primary market will reopen (a

point that is acknowledged in the BATS white paper). Anyway,

rather than deliberate on this, the guys at Fidessa Towers and I

thought we would take the "ask the audience"

option and allow you to make your views known to the trading

community at large.

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The second development was the announcement

that

href="http://www.ft.com/cms/s/0/1c6ef940-e40d-11de-bed0-00144feab49a.html"

target="_blank">Nomura is going to reclassify its dark pool

(NX) as an MTF and adopt a more transparent approach to

publishing post-trade information by publishing its trades to

Markit BOAT. Whilst Nomura is to be applauded for playing the

game, it's still only a partial solution to the

problem. Other broker dark pools, such as BlockMatch from

Instinet, have taken the MTF high ground, too, but still report

in a different way (BlockMatch trades are printed to the Chi-X

OTC tape, for example). The net result is that it is still pretty

hard for the chaps back at Fidessa labs to assign all these dark

trades to the right categories. This point was highlighted by

CESR chairman Eddy Wymeersch who commented in the

href="http://www.ft.com/cms/s/0/1c6ef940-e40d-11de-bed0-00144feab49a.html"

target="_blank">FT Trading Room article

"we have very contradictory figures with regard to dark

pools". Maybe I'll ask Santa to put a title="Fragulator"

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

target="_blank">Fragulator in his Christmas

stocking.

A point that all venues (primaries,

independent MTFs and broker dark pools) need to remember,

however, is that it's not actually their liquidity in

the first place. Markets have always been about trying to bring

together willing buyers and sellers in order to meet the needs of

both. So, in reality, liquidity belongs to them and not to the

venues. What we need, then, is a clear set of rules for both

pre-trade price dispersal and post-trade reporting. Only then

will the real liquidity owners (market traders) be able to get a

fair deal out of MiFID.