June 4, 2018

As Best Execution requirements have significantly tightened under MiFID II, venue analysis has become an important mantra within buyside circles. However, quality of execution is only as good as the source and routing orders to the traditional venues may choke off performance due to high levels of toxicity.  This would not be the case with Aquis Exchange, which does not allow aggressive non-client proprietary trading and offers deep pools of liquidity in Europe’s blue-chip stocks.

The numbers are not insignificant. It is not just a couple of basis points – an Aquis study based on LiquidMetrix statistics shows that European investors including pension funds and retail investors are currently losing a hefty €2.3 bn due to excess trading costs each year by buying and selling shares on the incumbent stock exchanges.

In the UK alone, the toxicity level on the London Stock Exchange translates into annual missed opportunities of over €152 m in trading shares of FTSE 100 companies while the numbers for European markets such as France and Italy were even greater at €391m and €363m respectively. Throw in the Italian MIB, Swiss Market Index, Germany’s DAX and the OMX-Stockholm 30 and the figure already reaches over €1.5 bn a year.

The study examined the costs related to the market impact or toxicity of trading on the conventional exchanges versus newer, low cost, low impact alternative venues such as Aquis. The research specifically targeted the market impact or toxicity, which is the difference between the price of a stock when an order is received and the price of the same stock at intervals from the moment of trade up to five minutes after. There is often a misconception that the price at which a stock is bought is the same at which it is initially quoted, particularly if the client is buying in volume.

Although different venues have varying degrees of toxicity, the research confirms that investors are not getting the best deal by relying on the status quo. In order to truly comply with the Best Execution requirements, market participants and fund managers have to break with tradition and prioritise venues such as Aquis, which not only offers trading at the European best price but also has a fraction of the toxicity that many incumbents have.

by Lynn Strongin Dodds