The Great Game – 13 May 2011
First Published Friday, 13th May 2011 02:05 pm from Fidessa : Steve Grob
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NOR in Oslo earlier this week where I participated in
their Nordic Market Structure and Best Execution Summit. The
event was well attended and included a number of significant
buy-side firms. One of the themes that emerged was that liquidity
demand seems to be consolidating into a smaller number of large
investment firms whilst, conversely, liquidity supply is
fragmenting across different lit and dark venues.
This sets the stage for the "Great
Game" between the large investment firms and the HFT
community. Every time a buy-side releases an order (however
small) into a market, it releases with it an equivalent sized
indication of its trading intention. The perception of some in
the industry is that the HFT guys will trawl through these
orders, and then attempt to profit by stepping ahead of any
intentions they can identify. To my mind, both sides have a
completely legitimate part to play in the marketplace but you can
see how each has a different objective.
is one reason behind the success of firms like title="Liquidnet" href="http://www.liquidnet.com/"
target="_blank">Liquidnet that help buy-sides find
natural liquidity between themselves. The only challenge with
this approach is that it depends upon finding another institution
with an equal and opposite trading intention at the same time.
Failing this, then, the ideal market structure for a buy-side
institution would be one exchange and one daily auction.
Conversely, the HFT community wants liquidity as widely dispersed
as possible. Maybe this dichotomy helps explain the
"push me/pull you" nature of
consolidation/fragmentation that we are seeing across both the
lit and dark spectrum of venues.
thanks to everyone at DnB NOR for a very interesting