Financial Regulatory Forum

ANALYSIS-Inefficient systems keep European brokers behind the price curve

By Jane Baird

LONDON, Dec 18 (Reuters) – Europe’s fragmenting stock markets could cost investors profits unless brokers smarten up systems that currently fail to find the best price in 15-20 percent of trades.

Brokers use so-called smart order routing (SOR) to compare prices across the myriad platforms for a client’s order, chop the order into pieces and dribble them into trading venues to have the least possible impact on price.

Systems in Europe are often inefficient and are struggling to keep up with the pace at which markets are changing.

“All the brokers talk of their smart order routing capabilities, but in a lot of cases the use of the word ‘smart’ is actually wrong. They are incredibly clunky,” said Tony Whalley, head of dealing and derivatives at Scottish Widows Investment Partnership.

The equity market in Britain is divided between 25 exchanges, trading platforms and dark pools, Germany is split between 22 and France 23, since the European Commission’s markets in financial instruments directive (MiFID) opened up competition in 2007.

US lawmakers urged to drop clearinghouse ownership cap

U.S. Representative Barney Frank (D-MA) holds a news conference on issues before the House Financial Services Committee on Capitol Hill in Washington, November 3, 2009.  REUTERS/Jonathan Ernst   By Jonathan Spicer
NEW YORK, Nov 20 (Reuters) – NYSE Euronext, LCH.Clearnet, BATS Global Markets and other firms partnered with banks have urged two U.S. legislators to drop a proposed “rigid” cap on dealer ownership of clearinghouses, according to a letter sent this week.

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NASDAQ backs ban on “flash” orders – U.S. Senate critic Schumer

Nasdaq backs ban on ‘flash’ trading -Schumer
By Rachelle Younglai and Jonathan Spicer
WASHINGTON/NEW YORK, July 28 (Reuters) – The Nasdaq Stock Market supports a ban on so-called “flashes,” order types that it and other stock-trading venues send to a select group of traders fractions of a second before revealing them publicly, Senator Charles Schumer said on Tuesday.

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