If there’s one thing Father Christmas takes into consideration when it comes to presents, it’s fairness. Mrs Claus insists that siblings should always have the same amount of money spent on them – but what if one gift was discounted on Black Friday in Lapland? Is it price or value that matters?
You would like to think the same applies in markets when we look at *Presence. That’s the percentage of time a given venue contributes to the touch price. As we continue following Santa around the globe via the Land of the Rising Sun, we note that there’s a handy rule in the Japanese equity market. This allows participants on alternative trading venues, locally known as Proprietary Trading Systems (PTSs), to quote prices in increments below the standard tick size. Using this measure we can see where that dispensation provides a competitive advantage.
The top chart shows the Presence at the best bid price for two of the PTSs during the spring and summer this year across all stocks on the Japanese equity markets and we see that they are both competitive in their contribution to available liquidity at the touch (in this case at the bid).In the case of Cboe 66% of the time and for Japannext 39% of the time.
The lower chart drills deeper to see how much of that total time at the touch is within the regulated primary tick size regime. This allows them to ‘out bid’ the primary and provide tighter prices to participants. In effect, participants on Cboe get to the top of the queue using sub tick bids 18% of the time and on Japannext 9% of the time.
This means that opportunistic buyers can Nippon the bid on a PTS ahead of the best price on the Primary in order to attract sellers.
As Santa continues his travels around the globe he sees that fragmentation is appearing in markets which had previously been monopolistic as evolving regulation encourages competition. This should benefit participants and their clients and it also encourages innovation by the primary exchanges and the alternative venues as they battle for market share.
Not all markets are the same, therefore granular analysis starting with clean, normalised data sets is essential when trying to understand the idiosyncrasies of regional and local market quality.
That’s just one of the things we do. Join Santa to find out what else we discovered with his next delivery.
*Presence can be an exclusive measure (i.e. uniquely top of book) or contributing to the CBBO touch alongside other venues. In this case we looked at non exclusive i.e. total contribution to Presence.
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