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BATS Europe has published a white paper analysing NYSE Euronext’s 13th October outage, finding that the Multilateral Trading Facilities (MTFs) offered sufficient price formation and liquidity for regular trading. Authored by BATS Europe COO, Paul O’Donnell, it also calls for a common European outage protocol.
The findings, which include market data from BATS Europe, Chi-X Europe, Turquoise and NYSE Euronext, supplement BATS Europe’s previously published listings outage study in November 2009 following two separate outages at the London Stock Exchange earlier that month.
Executive Summary
At 15:42 BST on Wednesday 13th October 2010, the NYSE Euronext cash markets were halted due to human error. This paper builds upon previous analysis conducted by BATS Europe in relation to Listing Market outages. We have analysed market data and set out metrics by which to assess the impact of this outage on traded volumes on alternative trading venues (BATS Europe, Chi-X Europe and Turquoise), as well as the extent to which price formation took place on these venues during the outage.
The analysis demonstrates that, during the outage, traded volumes and execution rates on the alternative trading venues included in the study continued at a level comparable to normal, although we did not see a significant shift in liquidity from NYSE Euronext to these venues.
In addition, the analysis demonstrates that trading on the MTFs continued to show good price formation during the outage in the absence of a price from the Listing Market and that the prices on these venues were consistent with those of comparable European indices. This contrasts with the trading that took place at divergent – and effectively stale – prices on NYSE Euronext following the re-opening of its market prior to market close and during the Closing Auction.
We contend that the ability of the broad market to continue trading on alternative venues during a Listing Market (or alternative trading venue) outage has and will continue to strengthen the systemic stability of the overall market such that there is no single point of failure. As alternative trading venues continue to demonstrate resilience, consistent volume and reliable price formation during Listing Market outages, we expect more trading firms to be able and willing to continue trading.
Clearly it is important that individual venue outages are managed in a way that encourages the orderly continuation of trading. Therefore, we believe there is a strong need for a European protocol on trading venue outages to ensure that outages are managed in an orderly and consistent manner. We also contend that, given the proportion of trading that takes place on alternative trading venues compared with the Listing Markets, as well as the price formation that takes place on these venues, the index values would be a better representation of the overall market if they included prices from these venues. Similarly, inclusion of prices from alternative trading venues would help to ensure the continued availability of an index value, even in the event of a Listing Market outage, which would be beneficial to investors who maintain fund and derivative positions marked to index values.
