fidessa group plc smart order routing everything you wanted to know (but were afraid to ask) 28 th...
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Fidessa Group plc
Smart Order Routing
Everything You wanted to know
(but were afraid to ask)
28th October 2009
Steve Grob - director of strategy Fidessa
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Agenda
- Do you need a smart router at all?
- What are the challenges of SOR
- What's in the SOR Box
- Implementing SOR successfully
- SOR Checklist
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Spread of Fragmentation
• European wide regulation enacted in November 2007 to:– Harmonise the investment services regime in 30 European countries– Improve transparency– Improve client categorisation
• Provide “best” execution– Based upon multiple factors not just price
• Led to creation of: – Multilateral Trading Facilities (MTFs)– Systematic Internalisers (SIs)– and dark pools
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Unintended Consequences
• Fragmentation has also increased in:– Market Data– Clearing and Settlement
• Transparency Decreases– Different rules for Primaries, MTFs, SI’s and Dark Pools– MiFID Waiver – Cost of execution
• Lack of coordination– Market opening times– Tick sizes
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But……………….
Nevertheless trading of European equities has continued to fragment at an alarming pace.
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Which venues are most affected:
Source: Fidessa Fragmentation IndexSep 2008 to Sep 2009www.fragmentation.fidessa.com
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The London Experience
Fragmentation of FTSE 100 stocks has risen by over 50% in the last year
Source: Fidessa Fragmentation IndexSep 2008 to Sep 2009
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The London Experience II
And FTSE 250 stocks are affected too
Source: Fidessa Fragmentation IndexSep 2008 to Sep 2009
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France, Germany too
Source: Fidessa Fragmentation IndexJune 2008 to June 2009
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Even Switzerland
Source: Fidessa Fragmentation IndexSep 2008 to Sep 2009
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And the Nordics?
Source: Fidessa Fragmentation IndexSep 008 to Sep 2009
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Q -So do I need a smart router?
• A - Probably
• Chi -X, Burgundy, Turquoise• The Nordics is a microcosm for what is happening in Europe
• Break down of national boundaries• Sector breakdown• Cross listing
http://fragmentation.fidessa.com/stats/index/OMXC20.CO.html
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Old Style Order Routing
directed DMA flow
order
Trader
Algo
Client CARE flow
ALGO flow
electronic
(FIX)
CSX
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Smart Order Routing
SOR
Smart
Order
RouterSmart
CARE flow
Smart
ALGO flow
smart DMA flow
Clientelectronic
(FIX)
smart order
Trader
Algo
smart instruction
CSX
Chi -X
Burgundy
Turquoise
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SOR Challenges
• SOR versus Smart Workflow– Fungibility– Must be completely integrated
• Monitoring– did my SOR make the right decision?– Proving it to customers and regulators
• Venue Connectivity– Highly dynamic– Need plug and play approach
• Build versus buy– The risk of using smart brokers
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What's in the SOR Box
• Market Data– Virtual Market– Consolidated tape– Fungibility
• Making a smart decision– Liquidity/Price– Trading fees– Recycling unfilled orders
• Reporting - can I prove the SOR made the right choice to– Myself– My customers– My regulator
http://fragmentation.fidessa.com/
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Reporting
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Implementing an SOR Strategy
• Build versus Buy – Or……. use a third party Broker
• How does SOR fit with Algo trading– Algos are concerned with when to place an order (VWAP, TWAP, POV)– SOR is focussed on where (CSX, Chi-X, Burgundy, Lit v Dark)– And yes they do ultimately need to talk to each other
• Use suppliers that have proven technology– SOR sounds easy but it gets complicated quickly
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SOR Checklist
• It will be impossible to offer “good enough” execution without an SOR that:
– Includes lit and dark capabilities– Provides complete workflow– Tells you what is going on
• It will be difficult to offer execution services without adopting a pan Nordic and, ultimately a pan European, outlook
• The MiFID genie is out of the bottle – there’s no going back!
And you're going to need better information than beforewww.fragmentation.fidessa.com