Woodbine Associates (http://www.woodbineassociates.com) announces the release of a new report entitled “U.S. Exchange and ECN Performance, Second Half 2009.” The report focuses on how exchanges and ECNs compare in terms of the handling of basic order types central to price discovery.
“Contrary to what some might believe, there are measurable differences among the displayed market trading venues in terms of speed, price, bias, and depth-of-market,” said Matt Samelson, Principal, equity market analyst, and author of the study. “If the services provided by these venues are not a commodity, how and where orders are routed can be extremely meaningful from a best execution perspective. It’s about more than just take fees and rebates.”
The report examines exchange and ECN handling of market orders, marketable limit orders, and displayed limit orders without special order handling instructions, traded during normal trading sessions, excluding the opening and closing trades. Marketable orders are examined on the basis of execution prices and the degree of post-execution price reversion. Displayed limit orders are examined only on the basis of price reversion. Orders and shares are examined in the context of listing exchange. Appendices provide detailed information on execution quality by order size and security capitalization.
The data set used is comprised of metrics and information provided by the exchanges and ECNs under with Securities Exchange Act of 1934 Rule 11Ac1-5 / Rule 605 under Regulation NMS.
“A number of interests have challenged this data over the years,” said Samelson. “There is no perfect data set for any study. It all has limitations. However, this data is widely accepted in the academic community and in certain practitioner circles. Some of the data is useful and some isn’t. The key, as with any data, is to know how to use it.”
Among the study’s findings:- Matched shares in the basic market and marketable limit orders comprised approximately 48% of aggregate traded shares at exchange and ECNs as printed to the Consolidated Tape during the second half of 2009.
- Matched shares in the basic displayed limit orders comprised approximately 65% of aggregate traded shares at exchange and ECNs as printed to the Consolidated Tape during the second half of 2009.
- New York Stock Exchange provided the best price improvement with respect to marketable limit orders in its own listings but also revealed an environment prone to adverse selection for those displaying liquidity.
- BATS Exchange, Direct Edge, and NYSE Arca Equities perhaps provided the best “balanced” environment in orders of all which offered price improvement to market and marketable limit order users without facilitating adverse selection for liquidity providers.
- Many of the regional exchanges and smaller ECNs, in instances provided equivalent, if not superior, price improvement in market and marketable limit orders but generally were prone to adverse selection for those displaying liquidity.
This report,123 pages long (including appendices) with 5 tables and 121 figures, is available for purchase by contacting Ryan Surprenant, Director of Sales and Relationship Management, at rsurprenant@woodbineassociates.com or at +1 203-274-8970 x 203.
More information on the report is available at the Woodbine Associates website: www.woodbineassociates.com or by contacting Matthew Samelson at msamelson@woodbineassociates.com or at +1 203-274-8970 x201.