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Fidessa launches index to measure stock liquidity fragmentation

Date: Friday, November 21, 2008
Author: Hedgeweek.com

he London-based Fidessa group has launched the Fidessa Fragmentation Index, designed to provide the trading community with an accurate, unbiased measurement of the true state of liquidity fragmentation across order-driven markets in Europe.

Liquidity in European markets is fragmenting rapidly as new multilateral trading facilities have unveiled a range of low cost alternative trading platforms.

Fidessa says understanding how different stocks are fragmenting across these new venues is essential to implementing effective best execution strategies for both the buy and the sell side.
Steve Grob, director of strategy at Fidessa, says: 'Everyone agrees that liquidity is moving away from primary venues but there is no industry standard way to compare fragmentation quickly and easily between different stocks, indices and venues. This is exactly what we set out to achieve through the creation of the Fidessa Fragmentation Index.'

The index provides a single number to show how a stock or index is fragmenting.

It can help the sell side understand where and how it should implement smart order routing and help buy side firms identify where to direct their flow.

The index shows the average number of venues that should be visited to achieve best execution when completing an order.

An index value of one means that the stock is still traded at a primary exchange, while an index value of two or more shows that the stock has been fragmented significantly and to the extent that it can no longer be regarded as having a primary exchange.

The index covers the constituents of all the major European indices. To present a complete view of a stock's status, it takes into account the total number of venues over which it is fragmented, and reflects, for example, the difference between a stock that is split 80:20 between a primary and alternative venue, and a stock that is split 80:10:10 between a primary and two alternative venues.

It also enables changes in fragmentation to be plotted over time and allows comparisons in fragmentation to be made between different stocks and indices in real time and historically.

Fidessa group is head-quartered in London and has offices in New York, Boston, Tokyo, Hong Kong, Paris, Toronto and San Francisco.