Technology Will Eventually Reverse Fragmentation, Says Trading Roundtable

As reported by Julio Gomez from Wall Street & Technology, electronic trading players are balancing a daunting number of high-impact forces in today’s environment. From liquidity center formation, to preparation for rigid transparency rules, to managing the impact of high-frequency trading, there is no shortage of common challenges for industry executives to address.

Last week an unusual meeting of leaders from electronic trading was held in New York to take on these and other topics in a roundtable format. What made it unusual was that the group was comprised of a representative cross-section of the industry as a whole.  Firms of varying sizes, business executives from different asset classes, technology strategists, and infrastructure and service providers convened at the Electronic Trading Innovation Council. The group compared notes on disruptive trends in the industry. The group discussion yielded many insights, including:

— Liquidity Centers: Liquidity center formation is ad hoc and, in some arenas, overdone. Council members acknowledge the value of innovative approaches to accessing flow, but redundant approaches in low-margin areas will struggle. Meanwhile, facilities in newer, higher margin areas are volume-challenged. A hot topic: what should the role of the NYSE be?

— Tech Trumps Fragmentation: Technology will eventually reverse the current trend of liquidity fragmentation. There continues to be a proliferation of systems running pieces of various processes that comprise the global fabric of electronic trading. Technical advances will drive the efficiencies and economies of scale that will usher in a period of consolidation.

— Transparency: Transparency is a customer imperative, not just regulatory imperative. There is increased demand for exposure of a range of information, from execution venues, to counterparties, to how algos execute. Underlying this demand is increasingly sophisticated approaches to transaction cost analysis.

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