[ I N - D E P T H
|
S W I S S
small and mid-cap Swiss stocks
narrowed from 20.4 bps in June to
18.9 bps in September.
According to Shaw, spreads could
tighten even further as traders and
algorithms adapt to the new Swiss
trading landscape.
“It takes a while for the liquidity
providers to recalibrate their algo-
rithms from fragmentation to just
the one venue,” Shaw explains.
“You can see this in the data, they
almost back away from the market
immediately after the decision
until they have sufficient data to
come back in. I expect that over
time the spreads will tighten even
more as the liquidity providers get
more comfortable with the risk
profile of the market. The more
comfortable on risk they are, the
tighter they will start quoting, and
we are seeing that with one or two
of our members already.”
At the same time, the order-to-
trade ratio declined significantly
following non-equivalence in
July from seven – meaning that
for every seven orders, one is
executed – to four in September.
Shaw says that this shows greater
certainty of execution on the
order book because the liquidity
is concentrated on a single venue,
so traders are more likely to get a
fill. Subsequently, the number of
updates in the order book dropped
considerably, with the average
daily number of price updates
44 // TheTrade // Winter 2019
E Q U I V A L E N C E ]
“I expect that over
time the spreads will
tighten even more as
the liquidity providers
get more comfortable
with the risk profile of
the market.”
TONY SHAW, EXECUTIVE
DIRECTOR FOR LONDON, SIX
SECURITIES AND EXCHANGES
in blue chips declining from just
under 8,000 in the second quarter
2019, to just over 5,000 in the third
quarter.
Positive development
This picture painted by SIX Swiss
Exchange since non-equivalence,
with tighter spreads, greater
certainty of execution, and a less
‘noisy’ order book, coincides with
that of buy-side traders, many
of whom agree that the politi-
cal development and removal of
fragmentation introduced under
MiFID I has, in fact, turned out to
be very positive for the buy-side,
despite the initial sense of cau-
tiousness.
“What has happened with Swiss
equivalence has been great for
us. We are seeing more liquid-
ity, which is evenly distributed
throughout the day, less volatility
and tighter spreads,” says one
London-based asset management
trading head who spoke to The
TRADE on the condition of ano-
nymity. “We are back in a situation
pre-MiFID I where there was
only one exchange. Nobody really
wanted the fragmentation that
came with regulation, and with
Swiss liquidity there’s no reversion
because all of the liquidity is one
place.”
For domestic asset managers,
the outcome of non-equivalence
has been similarly positive. Eric
Champenois, head of the trad-
ing desk at Swiss asset manager
Unigestion, says that not only has
the concentration of liquidity on a
single venue led to great opera-
tional efficiency, it has also seen
the costs of trading decline.
Champenois states that in
certain small and mid-cap Swiss
securities, his trading desk saw a
hugely significant 25% reduction
in spread in the third quarter of
2019 from around 4.5 bps in the
previous quarter to 3.3 bps. Simi-
larly, spreads in the blue chips, he
adds, have narrowed quite heavily
by more than 10 bps in some cases.
“Generally speaking, we saw
a real improvement in terms
of liquidity, and trading on one
exchange is making things a lot
easier for us. It’s more transparent
and our execution costs have been
declining as well,” Champenois