Fidessa Group plc Smart Order Routing Everything You wanted to know (but were afraid to ask) 28 th October 2009 Steve Grob - director of strategy Fidessa
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
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
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
But………………. Nevertheless trading of European equities has continued to fragment at an alarming pace.
Which venues are most affected: Source: Fidessa Fragmentation Index Sep 2008 to Sep
The London Experience Fragmentation of FTSE 100 stocks has risen by over 50% in the last year Source: Fidessa Fragmentation Index Sep 2008 to Sep 2009
The London Experience II And FTSE 250 stocks are affected too Source: Fidessa Fragmentation Index Sep 2008 to Sep 2009
France, Germany too Source: Fidessa Fragmentation Index June 2008 to June 2009
Even Switzerland Source: Fidessa Fragmentation Index Sep 2008 to Sep 2009
And the Nordics? Source: Fidessa Fragmentation Index Sep 008 to Sep 2009
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
Old Style Order Routing directed DMA flow order Trader Algo Client CARE flow ALGO flow electronic (FIX) CSX
Smart Order Routing SORSOR Smart Order Router Smart CARE flow Smart ALGO flow smart DMA flow Client electronic (FIX) smart order Trader Algo smart instruction CSX Chi -X Burgundy Turquoise
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
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 fragmentation.fidessa.com /
Reporting
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
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 before