Canít see the wood for the trees? Ė 21 June 2010
First Published Tuesday, 22nd June 2010 02:04 pm from Fidessa : Fidessa
The opinions expressed by this blogger and those providing comments are theirs alone, this does not reflect the opinion of Automated Trader or any employee thereof. Automated Trader is not responsible for the accuracy of any of the information supplied by this article.
It is not always easy to get a clear understanding of
what's going on when confronted by large amounts of
data. The usual solution to this is to step back in order to get
some perspective and understand the bigger picture. The other
approach is to zoom in on a small part of the detail and see if
it is representative of the whole.
Take a look
target="_blank">Big Yellow Group, a title="FTSE 250"
target="_blank">FTSE 250 stock, for the week ending
href="http://fragmentation.fidessa.com/wp-content/uploads/ffi_bygl.png"> class="size-medium wp-image-1159 alignnone" title="ffi_bygl"
alt="Fidessa Fragmentation Index" width="350" height="150"
Despite the fact that its FFI
is above 2 it was actually only the 50th most fragmented stock in
target="_blank">FTSE 250 last week. This shows just
how deep the impact of fragmentation has become and how it has
gone way beyond the blue chip stocks that it all began with and
is now affecting even those stocks with relatively low
Dig a little deeper and the title="Fragulator BYG.L"
target="_blank">Fragulator shows an even more
In that same week, just
under 60% was traded on lit venues whilst the rest was spread
over dark MTFs, Systematic Internalisers and OTC trading.
However, the average trade size between the dark MTFs and the lit
venues was almost identical and so you have to wonder, at least
in this case, whether the extra cost and hassle of routing to the
dark books was actually worth it. When you consider that the
seven dark books concerned accounted for less than 7% of that
week's volume you start to wonder whether the best
execution imperative is all going a bit too far.
This seems to be especially the case for the buy-side,
many of whom prefer to deal in chunky blocks rather than have
their orders diced into smaller and smaller pieces and sent
spinning round lit and dark platforms in search of a
This extra confusion means that the
buy-side has to work harder and harder to form a view as to how
stocks are really trading so as to make sure that they are being
effective. This makes it difficult to select the right broker and
to assess their executional effectiveness.
Maybe what we need is a concept of "good
enough" execution as the extra cost and complexity
involved in going for "best" is making it
harder and harder to achieve.