Monday, 26 June 2017

Finra ATS Tier 1 statistical update

As a few things are afoot, it may be handy to get our heads around the current anatomy of the US ATS market. Let's meander through this dark corner.

We'll just look at the statistics for tier one stocks as these are the most timely reports.

There is no change to the relatively stable rankings of the top three pools. UBS's ATS and CS's Crossfinder remain way out in front. DB had a poor week with its position at #3 in the greatest peril for some time with both JP Morgan and Barclays being the closest to DB for some months.

Goldman Sach's transition to their new ATS has largely been completed with their newer platform rising ten places to #11 this week. KCG dropped three places to #14. LiquidNet H20 gained 4 spots. NYFX Cowen Exec Services dropped 6 places to #21.

In ATS news this week it was announced that Instinet is purchasing State Street's ATS. You can see Instinet's current pool is ranked tenth with 105M shares traded with State Street ranked twentieth. If they were combined, which is not being suggested yet, they would have rank of #9. The big difference between the two is that State Street's pool has an average trade size of 12,482 shares as compared to 229 for Instinet's current CBX pool.

DealerWeb (360,125) and LiquidNet (40,853) lead the average trade block sizes.

Luminex's paltry 5.3M shares traded, and fifth last ranking, clearly demonstrates that markets require diversity. Markets work despite the motivations of the participants. That's their ultimate beauty. Diversity matters and homogeneity risks growth. Luminex only managed 162 trades for the week. I'm not sure you need technology beyond a notebook and pen for that. At least the average block size at 32,879 was high, being the third largest. This emphasises that liquidity is a carefully orchestrated dance of mutual benefits. A dance of offer, parry, hedge, replenish. Quite the tango that is oft misunderstood as war rather than for being the carefully calibrated artistry that it truly is.


Rank ATS ATS T1 share % Volume Avg trade size
1 UBSA UBS ATS 17.61 486.2 M 172
2 CROS CROSSFINDER 13.97 385.6 M 189
3 DBAX SUPERX 7.14 197.2 M 195
4 MSPL MS POOL (ATS-4) 6.64 183.4 M 260
5 JPMX J.P. MORGAN SECURITIES LLC 6.53 180.3 M 212
6 LATS BARCLAYS ATS ("LX") 5.90 163.0 M 214
7 EBXL LEVEL ATS 5.59 154.4 M 208
8 MLIX INSTINCT X 5.01 138.2 M 228
9 BIDS BIDS TRADING 4.47 123.5 M 788
10 ICBX INSTINET CONTINUOUS BLOCK CROSSING SYSTEM (CBX) 3.81 105.2 M 229
11 SGMT GOLDMAN SACHS & CO. LLC 3.48 96.1 M 203
12 ITGP POSIT 3.47 95.9 M 308
13 KCGM KCG MATCHIT 3.31 91.3 M 184
14 MSTX MS TRAJECTORY CROSS (ATS-1) 2.15 59.3 M 177
15 XSTM CROSSSTREAM 1.58 43.6 M 391
16 DLTA DEALERWEB 1.45 40.0 M 360,125
17 IATS INTERACTIVE BROKERS LLC 1.17 32.4 M 290
18 CXCX CITI CROSS 1.13 31.2 M 230
19 LQNA LIQUIDNET H2O 0.92 25.5 M 17,565
20 BLKX STATE STREET GLOBAL MARKETS, LLC 0.91 25.2 M 12,482
21 NYFX COWEN EXECUTION SERVICES LLC 0.88 24.4 M 427
22 LQNT LIQUIDNET ATS 0.86 23.7 M 40,853
23 XIST INSTINET CROSSING 0.64 17.8 M 5,196
24 PDQX CODA MARKETS, INC. 0.50 13.8 M 230
25 CBLC CITIBLOC 0.31 8.6 M 19,651
26 MSRP MS RETAIL POOL (ATS-6) 0.26 7.0 M 186
27 LMNX LUMINEX TRADING & ANALYTICS LLC 0.19 5.3 M 32,879
28 WDNX XE 0.05 1.3 M 1,636
29 AQUA AQUA 0.02 0.6 M 6,488
30 BCDX BARCLAYS DIRECTEX 0.01 0.2 M 29,471
31 USTK USTOCKTRADE SECURITIES, INC. 0.00 0.0 M 56

(click to enlarge)

The top 5 pools represent over half the ATS volume traded. The top ten pools collective share has been steadily rising to the current accounting of three quarters of all ATS volume. This was assisted by IEX's dark pool transitioning to being the SEC's first dark public exchange which corresponds to the short period of the largest rise.

(click to enlarge)


The average trade size of the top 15 pools mainly resides in the minimal 100-300 shares per trade range with only XSTM CrossStream and BIDS being the consistent larger exceptions. The largest pool, UBS, typically has the smallest average trade size as you may see in the following chart. You may note the strange red line in the bottom right of the chart representing the new Goldman Sachs platform leaping into life.

(click to enlarge)

That previous chart makes it a bit hard to see if any of the top pools, apart from BIDS, have increased their average trade size. An alternative view of the top ten pools below shows their average trade size for the week compared to their average trade size over time, to make it easier to see variations in size compared to their own normal:

(click to enlarge)

Well, the size variation was meant to somewhat easier to understand in that chart for some strange definition of easier.

There does seem too many pools and exchanges. I can't help but wonder if there shouldn't be tighter policing of the proliferation by treating the NMS space more like radio spectrum and considering the venue space as a scarce resource. The bad old days of NYSE dominance showed one exchange to rule them all was not the best idea, but surely the US does not need more than forty exchanges and ATS pools.

I also remain of the belief that the SEC should carefully consider the two types of pools we see in this ATS mix. There is quite a different utility to a large block trading pool and a pool with a small average trade size. They are different beasts. Perhaps the SEC needs to explicitly partition their rule space for such species.

I'm not sure a small average trade sized pool with lots of volume should exist for many years if it is not a public exchange. I'm biased against such such parasitic pools due to their lack of participation in price discovery. Parasitic pools, like index funds, may have some utility but it should be clearly articulated what their efficiency or utility really is. It is not always clear what such low average trade size pools offer apart from being an embryonic step to being a public exchange. If there are some benefits gained by the low trade sized ATS pools due to easier rule enforcement then perhaps the rules for exchanges should be changed to allow the same efficiencies. If such rules aren't suitable for a public exchange, then perhaps they have no place for an ATS either.

Perhaps time limited ATS licenses should be granted for the low average trade sized ATS? Go big, or go home. Be an exchange in five years or stop clogging up NMS plumbing. All systems need a cleanse from time to time.

Happy trading,

--Matt.

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OTC Transparency data is provided via http://www.finra.org/industry/OTC-Transparency and is copyrighted by FINRA 2017

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