LiquidMetrix / Neonet White Paper: Intraday auctions - Are your algorithms ready for them?
Revitalised Auctions an Alternative Answer to Search of Equity Liquidity
White Paper from Neonet and LiquidMetrix
Stockholm, 14 April 2015
- Neonet Securities, the independent agency broker and execution specialist, together with LiquidMetrix, the financial market data research and execution
quality analysis expert, has published a mutual white paper analysing the likely impacts and opportunities surrounding the introduction of intraday
auctions and relating this to the proposed MiFID II restrictions on dark pools.
London Stock Exchange's introduction of midday auction late 2015 is analysed as an example of an alternative to dark pools with comments from Brian
Schwieger, Head of Equities at London Stock Exchange.
Conclusions from the white paper, available at www.neonet.com and www.liquidmetrix.com:
- Intraday auctions fulfil similar client needs of minimising market impact and maintaining confidentiality as dark pools and are therefore a credible
- Successful intraday auctions attract a large share of the available liquidity from other execution venues during the time of the auction which can
be seen during the Exchange Delivery Settlement Price (EDSP) auctions held on the London Stock Exchange.
- Market participants will have to adapt their trading behaviour and algorithms pre and post trade to interact with and maximise the benefits offered
by this new source of liquidity.
"London Stock Exchange's intraday auctions present exciting new opportunities and challenges to current agency trading algorithms. To maximise the
benefits, trading firms will need to create good pre-trade models of the expected trading volumes, spreads and liquidity before, during and after the
intraday auctions. Equally importantly, firms will need good post trade analytics that give confidence that the prices and liquidity they obtained during
London Stock Exchange's auctions have contributed positively to overall algorithm performance. We are looking forward to working with our pre and
post-trade clients to help them make maximum use of this new source of liquidity to improve their overall trading performance," said Dr Darren Toulson,
Head of Research at LiquidMetrix.
"We argue that the optimisation of algorithmic strategies around existing and new auctions will become an additional critical factor in the selection and
segmentation of algo providers. Neonet carefully reviews the impact of additional intraday auctions on our algorithmic strategies and how to manage our
algorithmic trading patterns around the auction time, examining both schedule-driven and opportunistic algorithms, which require in our view a distinct
approach," said Jan Jonsson, Head of Execution Product at Neonet.
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About Neonet Securities
Neonet is an execution service provider that offers independent, flexible and transparent execution services, which significantly reduce the cost of
trading for users. All trades are executed on regulated markets and Neonet does not engage in proprietary trading or any other financial activity that
could result in any potential conflicts of interest. Neonet serves clients in over 20 countries.
The company was earlier listed but is currently privately owned by a consortium of owners including Hay Tor Capital LLP, KAS Bank N.V., Nordic Capital /
Cidron Delphi Intressenter AB and Neonet management.
For more information, please go to www.neonet.com
IFS LiquidMetrix are experts in financial market data research and execution quality analysis. IFS developed the LiquidMetrix suite of services focussed on
execution quality assessment, transaction cost analysis and pre-trade cost prediction across increasingly fragmented global equity markets.The product
suite has recently been extended to include detection and alerting on patterns of market abuse to meet the MAD, MiFIR and ESMA guidelines. The IFS
LiquidMetrix Pre and Post Trade Analysis services are made possible through our suite of proprietary tools for optimal storage and retrieval of trades, and
full depth order book data from multi-terabyte databases of equity venue data. The LiquidMetrix products allow brokers as well as trading firms to monitor
and compare the performance of their order routing technology / algorithms / broker DMAs, and to make informed decisions on achieving the best possible
For further information, visit www.liquidmetrix.com
The Realization Group
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