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U.S. Exchange and ECN Performance: First Half 2008

U.S. Exchange and ECN Performance: First Half 2008

Liquidity trumps execution quality; Available data suggests traders prefer trading venues with depth-of-market over others that provide superior execution.
By Matt Samelson

Boston, MA, December 15, 2008 – A new report from Aite Group, LLC examines the execution performance of U.S. exchanges and ECNs over the first six months of 2008. The report focuses separately on traders seeking liquidity using market and marketable limit orders, and on traders providing liquidity using non-marketable limit orders.

The overarching observation derived from the report is that traders appear to value depth-of-market over metrics such as speed, price and selection bias. The report does not explicitly rank trading venues since the relative importance placed on each metric varies from trader to trader. Instead, performance by metric is provided and evaluated, leaving any final ranking to the reader.

The data used in this report is that provided under Securities Exchange Act of 1934 Rule 605, which provides data on a range of "covered" orders of less than 10,000 shares. While many dismiss the data as it represents only a limited portion of each firm's overall transactions, Aite Group believes it is useful to assess the relative performance among trading venues in the covered order types.

"The difficulty in explicitly ranking trading venues is that different people give different weights to the metrics used to evaluate performance," says Matthew Samelson, senior analyst with Aite Group and author of this report. "With respect to market orders, for example, one person may heavily weight execution speed in his or her trading decision while another may values price improvement. With respect to data, no security market data set is comprehensive. That doesn't mean analysis on a portion of a trading venue's business can't provide insight into that venue's overall performance."

This 52-page Impact Report contains 27 figures and two tables. Clients of Aite Group's Institutional Securities & Investments service can download the report.