MTFs: A strategy more complicated
The proliferation of alternative trading venues in Europe has vastly complicated the task of achieving best execution.
According to a new study on trading behaviour in the post-Mifid environment by pan-European brokerage CA Cheuvreux, the increase in the number of new trading destinations has had a profound impact on optimal trading strategies, as the particular market structure rules of trading venues and their different trading participants have directly affected the intra-day behaviour of stocks.
According to Cheuvreux, new MTFs increase the relative liquidity difference between continuous order book trading and fixing auctions because they mainly target continuous order book trading liquidity. Fixing auctions usually represent 15.6% of continuous phases but because the typical time ratio between the continuous auction phase is in the region of eight-and-a-half hours compared with just two five-minute phases, fixing auctions are far more liquid than continuous ones. This has a big impact for mark-to-market funds for which the closing price is the reference price.
The fact that there are more arbitrageurs and algorithmic traders trading on UK stocks than on French ones or German ones means new trading destinations, mainly targeting the continuous auction phase, will potentially attract more liquidity on UK stocks than on French or German ones – a result seen by the relatively better market share of FTSE 100 stocks.