Deriving Equities Market Share – 21 September 2010
First Published Wednesday, 22nd September 2010 02:05 pm from Fidessa : Steve Grob
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.
Last Friday, the 17th September, highlighted again the
interrelationship between derivatives and equities in terms of
fragmentation. The third Friday of the month is associated with
futures and options expiration and so market participants close
out positions with a resultant surge in volumes on the primary
exchange. You can see this effect clearly in the US, Canada and
London as volumes crystallised around the
href="http://fragmentation.fidessa.com/venuestats/?venue=NYSE&venuedesc=NYSE®ion=NA"
href="http://fragmentation.fidessa.com/venuestats/?venue=XTSE&venuedesc=TSX®ion=CA"
href="http://fragmentation.fidessa.com/stats/exchange/LSE.html"
target="_blank">LSE respectively.
The question this raises is what quality of execution
these market participants received (and whether they care). Take
href="http://fragmentation.fidessa.com/stats/exchange/LSE.html"
target="_blank">LSE's average volume of
href="http://fragmentation.fidessa.com/stats/index/UKX.html"
target="_blank">FTSE 100 is around 30%, yet last
Friday this jumped to nearly 45%. The same was true of New York
href="http://fragmentation.fidessa.com/venuestats/?venue=NYSE&venuedesc=NYSE®ion=NA"
target="_blank">NYSE jumped by about a third in
href="http://fragmentation.fidessa.com/indexstats/?index=.INX&indexdesc=S%26P%20500®ion=NA"
target="_blank">S&P 500 stocks last
Friday.
I guess if you are the owner of an
'in the money' option ticket then maybe you
simply want to cash in your winnings, especially if you know
there are probably plenty of other people in the queue behind
you.
That's why most of this volume
gets sucked into the pre-market auctions operated by the primary
market centres. Nevertheless, in these days of super smart order
routing, it seems odd that these folks don't have the same
sensitivity to achieving the absolute best price for the
underlying cash leg.
As it stands currently,
though, it does seem to be an area that the primary market
centres have a bit of a stranglehold over, especially as this
effect seems to be a global phenomenon. During the summer there
was quite a bit of speculation in Europe over how derivatives
might be used as the next ammunition in the battle between
venues. There are some obvious challenges in terms of fungibility
and clearing, but any venue that can find a way to leverage the
correlation we see every third Friday looks to be on to
winner.
