Liquidity Fragmentation & SOR

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September 27, 2011

Liquidity Fragmentation & SOR

EXTENT February 2011 Presentation
Exactpro Systems LLC

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Exactpro

September 27, 2011
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  1. Liquidity Fragmentation & SOR Iosif Itkin EXTENT February 2011

  2. Contents MIFID - The Markets in Financial Instruments Directive is

    a European Union law that provides harmonised regulation for investment services across the 30 member states of the European Economic Area (the 27 Member States of the European Union plus Iceland, Norway and Liechtenstein) MTF - Multilateral Trading Facility FFI – Fidessa Fragmentation Index Best Execution - refers to the obligation of an investment services firm (such as a stock broker) executing orders on behalf of customers to ensure that the prices those orders receive reflect the optimal mix of price improvement, speed and likelihood of execution SOR - Smart Order Router
  3. Technology & Regulations Newswire and information source for the worldwide

    financial technology community: http://www.finextra.com
  4. Technology & Regulations Financial Times videos: http://video.ft.com/ft-trading-room

  5. FTSE 250 Market Share Source: http://www.batstrading.co.uk/market_data/market_share/index/

  6. FTSE 250 Market Share (MTFs) Source: http://www.batstrading.co.uk/market_data/market_share/index/

  7. Fidessa Fragmentation Index Source: http://fragmentation.fidessa.com

  8. Fidessa Fragmentation Index Source: http://fragmentation.fidessa.com N – Number of Execution

    Venues, Mi - Market Share of Execution Venue FFI shows the average number of venues you should visit in order to achieve best execution when completing an order. a) Assuming Mi = 1/N b) Assuming Mi = x, Mo = 1-x and N=2
  9. Fidessa Fragmentation Index Source: http://fragmentation.fidessa.com

  10. Testing Trading Systems Quality and stability of algorithmic trading systems

    become a crucial factor in the current trading landscape. Three aspects of advanced execution systems quality: • Functional correctness • Technical – performance, latency, resilience • Business efficiency Two dimensions to their complexity: • Technological: complex algorithms relying on historic and real-time market data and dynamically changing decisions, might include non-deterministic behavior; • Organizational: frequent system upgrades, multiple instances of algorithms running simultaneously. Behavior in production is key, but a robust testing procedure using simulators provides additional confidence in the results and even helps to interpret some production observations.
  11. Smart Order Routers Testing

  12. Testing Principles • Scheduled tests vs. test markets during business

    hours • Scheduled tests vs. simulation frameworks are constantly running • Treat the test farm as a Production system • Reflect the latest Production observations in the test suites • Systems require careful data maintenance • Ensure precision and correctness of latency measurements • Due to stochastic behavior the same tests are repeated multiple times
  13. Complex Smart Order Router Treat the Test Farm as a

    Production System
  14. 1. Testing Principles Scheduled Tests vs. Test Markets during Business

    Hours
  15. 2. Testing Principles Scheduled Tests vs. Simulation Frameworks are Constantly

    Running
  16. 3. Testing Principles Treat the Test Farm as a Production

    System
  17. 3. Testing Principles Treat the Test Farm as a Production

    System
  18. 4. Testing Principles Reflect the Latest Production Observation in the

    Test Suites
  19. 5. Testing Principles Systems Require Careful Data Maintenance

  20. 6. Testing Principles Ensure Precision and Correctness of Latency Measurements

  21. 7. Testing Principles Due to Stochastic Behaviour the Same Tests

    are Repeated Multiple Times
  22. Questions & Answers Thank you.