Market Liquidity Analysis

Fragmented markets, with multiple pools of liquidity, represent a trading challenge to buy and sell side firms alike. In the US, the equity marketplace is extremely fragmented, with many different liquidity pools, both visible (exchanges, ECN’s and ATS’s) and dark. Europe is rapidly moving in this direction thanks to the Markets in Financial Instruments Directive (MiFID), which has removed barriers to competition among exchanges and ATS’s. We are now seeing a rapidly expanding market presence for exchanges trading across borders, new Multi-lateral Trading Facilities (MTFs) and Systematic Internalisers who are formalizing their role as an execution venue.

With the overall liquidity pool for a given security fragmented among multiple venues, it’s harder to “see” and understand the full market. How much liquidity is out there? Where is it? Who has the best price? Where is the pressure and on which side? Answering these questions in a rapidly changing market requires new tools that can continuously consolidate and analyze the entire available market, not just the slice of the market represented by a single execution venue.

To compound the challenge, markets are moving at a rate, and producing data in such volumes, that trading off of raw data is no longer practical. You need tools that can extract insight from the raw data. With the right tools, you can make better trading decisions, looking at when, where and how to trade.

  • Smart Order Routing: implement enhanced routing algorithms that look beyond price and factor in market depth, execution costs and other factors.
  • Best Execution Compliance: with customized smart order routing you can ensure compliance with best execution policy and the system can capture all data needed to monitor and report on compliance
  • Algorithmic Execution: enhance trading algorithms with current information about market depth and multi-venue trading activity.
  • Strategy Trading: look beyond top of book to spot trading opportunities lying just beneath the surface; capitalize on inter-market price disparity.

The Aleri Market Liquidity Analysis engine provides a high performance customizable solution to the challenge of market fragmentation. It leverages the performance and flexibility of the Aleri CEP platform to deliver:

  • Consolidated last trade and best bid/offer
  • Consolidated full depth (or fixed depth) order books
  • Customizable venue set and consolidation maps – you control the venues to include at the individual security level
  • Multi-currency consolidation/quoting
  • Extensible with custom analytics for smart order routing or to power trading algorithms
  • Publish consolidated market data into a market data system