Publication date: 13 March 2023
Authors: Paul Besson, Head of Quantitative Research, Théo Compérot, Quant Research Analyst and Anatole Casimir, Quant Research Analyst
In this note we compare the relative performance of aggressive executions on Italian stocks, by comparing Lit trades on Borsa Italiana with trades on Equiduct MTF. To conduct this assessment we compare gross executions with the Primary Best Bid Offer prices. Our analysis is based on public market data from independent data provider BMLL, and is fully reproducible.
We first evidence that, when considering all trades from Equiduct APEX, retail gross trade prices on Italian stocks are worse than those on the Primary Market of Euronext Milan by -1.60 bps (see Table 4, p9).
Likewise we also show that, through Euronext’s Best of Book retail programme, Best of Book gross trade prices improve Primary Market quotes by +0.96 bps (see Table 5, p10).
Comparing retail executions on Primary Markets and on Equiduct (APEX)
On the Legacy Euronext Markets, retail traders can trade via the Best of Book model (later referred to as BoB), which enables aggressive orders from retail brokers to interact with specific retail quotes provided by designated market makers that supplement the all-to-all liquidity of the Euronext orderbook.
Another alternative for retail providers is to use the Equiduct APEX model (later referred to as EQDT), which allows aggressive retail traders to trade at the consolidated volume weighted at the best limits as computed by Equiduct (VBBO).
In order to compare the outcomes of these two models, we compute for each trade its Primary improvement versus the Primary Best Bid Offer. Thus we compare the Primary improvements offered by Equiduct and by Euronext Best of Book.
On Italian stocks, since orders are not specifically identified as retail orders on Euronext Milan, we compare Equiduct APEX retail trades with standard Lit aggressive trades on Milan market (later referred to as XMIL, its MIC code). We then compare the Gross and Net Primary improvements of these trades.