Execution and Exchanges - Articles & White Papers

The short answer to this question is: It depends! The longer answer is different for different investors and trading signals. That, in turn, means issues like long queues, invested venues and speed bumps matter more (or less) depending on how you need to trade.

This paper by Grant Thornton reviews the current state of firms’ architecture and poses two critical questions: (i) What does capital markets architecture of the future look like? (ii) How can it be simplified to maximise the value of investments?

We run an exchange that trades more than 1 billion shares each day and lists more than 2,600 companies, so we’re constantly focused on ways to improve trading economics and market quality. As regular readers know, much of our recent research has looked at this. Today we start with the recent studies showing the drift higher…

We’ve recently talked about how the market naturally determines what an optimal spread should be. In that post it was obvious that the one-cent tick could be an artificial constraint for liquid stocks at “too low” a stock price level. That, in turn, leaves spreads that are artificially wide (in basis-points). Today we delve…

In most of the world, the majority of trading costs are charged in basis points (hundredths of a percent), which means variable costs are the same for a $1 million trade in any stock. However, the U.S. has stuck to “cents per share” and mils (cents per hundred shares). With the rapid changes in stock prices, that’s creating…

A lot of people talk about small cap being illiquid and harder to trade. But is that really true?

Stock prices are drifting higher due to a lack of stock splits. Research shows that this is not normal. In fact, back in 2009 an academic study found that U.S. firms had kept their share prices constant at around $35 from the Great Depression through 2009 – that’s 80 years! But what really interested us was other research…

Risks in the markets under ESMA's remit remained at high levels, reflecting very high risk in securities markets and elevated risks for asset management, infrastructures and services. ESMA's assessment of the individual risk categories did not change from 1Q19, with market risk remaining very high due to asset…

We study liquidity on the London Stock Exchange. We find that the average bid-ask spread declines, but that the skewness of the spread increases. These results are robust to firm size, trading volume and price level. Our findings hold when the bid-ask spread is estimated utilising high frequency data. We find that the bid-…

At a time when asset managers and asset owners are under growing pressure to reduce their costs of operations, the benefits of outsourced trading are becoming more compelling for investors of all sizes. But as Nadine Chakar points out, outsourcing trading is about delegating, not abdicating, control.

For those of us who trade every day, it’s easy to dismiss what goes into supporting a listing. We have humans to help with investor relations questions, systems to assist with governance, tech to surveil the market, and we also advocate to improve capital formation. In addition to a great marketing team that helps listed…

We’ve recently talked about how liquidity provider incentives do add to market quality, and also talked about how tick-constrained stocks have more depth, thanks to their wider spreads. Today we’re taking a deeper look at the economics of quote depth and spread, using data that is already in the market.

We recently discussed all the routing choices an algorithm has to make to place an order into the market—picking the right price, time, order type, venue, and order aggression. Today we focus on just one aspect of those choices: the venues. Let's bust a few myths at the same time.

For most stocks priced above $100 per share, a few things start to happen. Firstly, as we’ve previously highlighted, almost all stocks start to trade with a bid-offer spread that is multiple ticks (cents) wide. In addition, we see spreads in basis points also become wider on these high-priced stocks. V is for Volume,but it…

As markets have become more modern, with automated trading playing a central role, the speed of trading has accelerated as technology has improved. But the speed of light hasn’t changed. It has remained constant at (roughly) 186,000 miles-per-second.

We recently talked about how stocks with high prices see a higher percentage of odd lots, and how those odd lots aren’t required to be included in the National Best Bid and Offer (NBBO). In TotalMarkets, Nasdaq supported adding odd lots to the NBBO in a smart manner. But what is the real impact of that? Do odd lots actually…

We all know spread capture is important. But sometimes how you do it affects how much value you add. One of IEX’s favorite charts is their “price improvement” chart. Thanks to the way they calculate it, they typically do well – although they often place second to Chicago, which they have in the past left off the chart. But “…

We recently looked at queue times for liquid stocks, and noticed the NBBO of most large cap stocks was less than 30 seconds. Today, we look at the entire stock universe and see that queues move far slower for less liquid stocks, although that’s not because of trading incentives and spread economics.

Markets in the U.S. and Canada have a pretty unique way of closing. In most other countries, there is a separate market close auction after continuous trading ends. In contrast, North American markets build the auction book while continuous trading is still occurring. There are good reasons to do this, but some complain that…