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  • 2012/01/27
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A global menu for optimal trading: global exchanges and regulators face the same issues

Crédit Agricole Cheuvreux announces the publication of Navigating Liquidity 6, the sixth in its series of equity market micro-structure reports. These reports provide a detailed analysis of the impact that MTFs have had on market efficiency and liquidity fragmentation, as well as the challenge that they pose to the primary markets.

Key areas explored in Navigating Liquidity 6:

  • The market micro-structure is converging at a global scale, while exchanges compete to attract trading flows
    • As a consequence of the on-going mergers among market operators, the number of actors and technologies will decrease but not the number of order-books and trading services.
    • The ongoing uniformisation of trading hours in Asia, following the way paved by the US and Europe a few years ago, is part of this global convergence.
    • The two main parameters of this modern market design are: the type and scheduling of auction mechanisms (continuous, fixing), and the tick size. The choices that will be made by market operators will have a deep impact on High Frequency Trading activity.


  • The main parameter to understand the performance of trading and execution cost is Investors' timing
    • At a medium time scale, we identifies order flow patterns during the pre-fixing auctions, showing a mean field effect: isolated strategies aggregate to form information patterns. They have to be used by trading algorithms
    • At a largest time scale we show that usual "market impact" measurements are driven by the type of strategy that triggered the order. Any customization allowing to match a trading algorithm with the specificities of a Buy Side investment strategy is a plus.
    • At very small time scale we explain how HFT (High Frequency Traders) can capture the spread, tightening it but asking for more money to all other investors, just because of a timing effect.


  • The demand for algorithmic trading is mainly oriented towards liquidity-seeking optimisation in the US, execution efficiency in a cross-market comparison in Asia, and routing and implementation shortfall in Europe
    • We show how a new breed of benchmarks is coming, by combination of risk controlling envelopes, trading rate constraints, and liquidity seeking.


"'These reports provide a detailed analysis of the impact that regulatory change has had on market efficiency and liquidity fragmentation., With the European Commissions currently reviewing the proposals for revision and new regulation under the Mifid II review it is imperative that the market evolves in line with the best interests of the investors. Cheuvreux take an active role within the industry representing your views as an unconflicted agency broker. These reports provide critical analysis of the of the state of the markets giving greater understanding of the issues and challenges that exist today in providing and sourcing liquidity efficiently,”,” says Ian Peacock, Head of Execution Services at CA Cheuvreux.

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