Pages: 40

Publication: 17 February 2022

Authors: Paul Besson, Head of Quantitative Research, Théo Compérot, Quant Research Analyst and Victor Vialard, Quant Research Analyst

Price reversion has become an essential topic for traders seeking to improve their allocation across venues. In this paper, based on public market data from primary markets and MTFs and using 0.8 million trades, we address specifically three key questions related to Markouts and venue selection for the benefit of investors.



We first evidence that Markouts increase almost linearly with spreads, and that their main driver is the aggressive trade size expressed as a proportion of the available consolidated liquidity (see Figure 8 p11).



Then, we exhibit that Markouts +1s after an aggressive buy trade at the European Best Offer are +0.4 bps larger for Turquoise and +0.6 bps larger for Cboe Europe compared to Euronext (see Figure 21 p22).



Lastly we show in the same manner that Markouts +100s after an aggressive buy trade at the European Best Offer are +0.4 bps larger for Turquoise and +0.8 bps larger for Cboe Europe compared to Euronext (see Figure 24 p24).



We believe that, for the benefit of investors, better Markouts on Euronext should be reflected in overall passive trade allocations.

Price Markouts and venue selection

Venues and Markout analysis

The analysis of price changes occurring before and after elementary executions on venues is often referred to as “price reversion” or “Markouts” analysis. When assessing the characteristics of both Dark and Lit venues, these metrics have become essential to help participants improve their trading outcomes through a reliable method of venue selection.



Many public studies are available on EBBO presence and the available depth across European trading venues. Nevertheless, there is surprisingly little or no publicly available assessment of trade Markout analysis across European venues in the academic literature.

Best execution and venue selection for aggressive and passive trades

Venue selection for investors’ trades is both a crucial and complex topic. While the ultimate choice of venue results from the executing brokers’ own order-routing logic, investors’ trading performance depends on this key choice. Venue selection covers two distinct situations that must be differentiated between: aggressive and passive trading.



Venue selection in the context of aggressive trading is strictly controlled by best execution practices which require that aggressive trades are routed first to venues that display the required quantity at best price. Therefore, differences in venue selection exist, but they only come into play when several venues display similar liquidity at the same price.



In contrast, venue selection in the context of passive trading is open to more interpretation. Some investors seem to believe that across similar types of venue, sending a passive limit order should lead to the same outcome, as the execution price remains the same in all cases. Thus some may think that the choice of venue for passive trades is only a secondary matter. Our main objective in this paper is to evidence that different passive trading allocations lead to different outcomes.

Main questions addressed on Markouts across Lit venues

In this note we focus on multilateral Lit venues. We first evidence the properties of Markouts following a trade. We then show the main drivers of Markouts. Then we compare Markouts across the main continental Lit venues: Euronext, Cboe Europe and Turquoise. Finally, we show significant differences in outcomes and relate these findings to passive posting strategies across exchanges.

Request the report, contact us:  QuantReports@euronext.com

On 27 March 2023, Euronext completed the migration of Borsa Italiana’s Equity and ETFs to the Optiq® platform – only nine months after the successful migration of the Euronext Core Data Centre from the United Kingdom to Italy. In this article, we look at how the teams worked behind the scenes to accomplish the most significant phase of the Optiq® migration just 22 months after Borsa Italiana joined Euronext, and how the Italian market’s presence on the Optiq® platform benefits all Euronext’s investors.

Close cooperation with clients a key success factor

According to Camille Raizin, Head of Transformation and Projects in Euronext’s Market Services (EMS) department, good internal preparation, clear guidelines and strong client relationships supported by the commitment of dedicated teams internally were key to manage a migration of this size and complexity.

Our aim was minimum disruption, to make a very complex process as smooth and clear for our clients as possible.

“We always want to take as much of the burden off clients as we can, by ensuring they are absolutely aware of what they need to do and of any changes on our side that might impact them,” she says. “Experience has demonstrated that clients prefer us to be in regular contact, and are happy to put up with us chasing them to avoid missing a crucial milestone in the process.”

To help clients keep abreast of the project’s progress and status, Euronext set up a full structure and organisation internally dedicated to client readiness. A dedicated Optiq® migration client-facing team was created with team members in Italy, France and the Netherlands, and dedicated tools implemented, including a shared tracker that ensured everyone was up to speed. The team mapped out the customer journey in close detail, so that this could be shared with clients and everyone was working from the same base.

Once the onboarding strategy had been defined, the migration team began an extensive programme of communication. They held client readiness webinars with clients across Europe, going through technical, logistical and functional changes. Multiple one-on-one meetings and regular phone calls were held between Euronext teams and the technical and business contacts from each client firm. These sessions made sure everyone was apprised of deadlines and deliverables at each project phase. And over fifty communication documents were also sent to clients and made available on the Euronext customer portal.

Given the migration’s wide impact, keeping to the tight migration schedule was essential. “Clients needed to secure time, resources and budgets, as well as make sure they had the needed capacity for IT work, weekend testing and so forth,” explains Simona Cervi, Head of Client Services and Membership in Euronext Market Services, Italy. “And, of course, if certain elements were missed it could delay the entire schedule. So, nothing could be left to chance. We had more than 20 steps to be checked for each client before we could say a client was ready.” Thanks to these extensive preparation efforts, and the teams’ deep knowledge of the clients, their business and technical set-ups, the phase one migration was completed successfully.

Dress rehearsals provide final check and peace of mind

In the weeks leading up to the go-live date, Euronext conducted two mandatory Dress Rehearsals for customers, both held on a Saturday. “During a Dress Rehearsal, a real trading day is replicated on the full set of financial instruments on all impacted markets. Over the course of the day, clients enter orders and execute trades to check that everything is working correctly,” Simona Cervi says. Clients had a team present during each rehearsal and over the migration weekend to run testing on their connectivity and access to the trading system.

On the Euronext side, technical, business and sales teams worked closely together to make sure clients had completed the necessary steps (including signing contracts, requesting access rights, functional and technical tests, etc.) to be able to participate in the dress rehearsals.

“In fact, this was so successful that the first customer dress rehearsal saw our best ever result, with a 99% success rate based on our KPIs on the first Saturday alone,” says Camille Raizin. “When we collected feedback after the phase one migration, customers told us how helpful our approach was, highlighting our communication, interaction and regular meetings and calls as key success factors. And we are learning as we go, so we hope to make it even better for phases two and three.”

Bringing the benefits of Optiq® technology to the Borsa Italiana markets

Now that this first phase of the migration is complete, a world of benefits opens up for the Italian capital markets. “By joining Europe’s largest liquidity pool, we are further strengthening Italian capital markets. This migration will bring significant benefits to Italian issuers, members, investors and the real economy, as well as to the European financial markets ecosystem,” comments Fabrizio Testa, CEO of Borsa Italiana and Head of Fixed Income Trading. Italian professional and private investors will benefit from a state-of-the-art platform, gain access to a wider range of European equities and ETFs and a range of complementary features and services, such as Best of Book and Internal Matching Services.  At the same time, Euronext has updated the Optiq® platform to accommodate existing trading services Borsa Italiana offered to the Italian market, such as Trading After Hours, the Market for Investment Vehicles and direct distribution and takeover bids. Borsa Italiana’s market issuers also benefit from this migration, as they now have seamless access to a considerably larger number of investors, a larger network of trading participants and to superior market quality.

Bringing the benefits of the Borsa Italiana markets to Euronext investors everywhere

Manuel Bento, Group Chief Operating Officer at Euronext, also points out that the migration benefits go far beyond the Italian market.

Euronext adopts the best practices of both the Borsa Italiana and Euronext markets, maintaining key local specificities that have strong market value and harmonising these across markets wherever relevant. Thus, all our clients will be able to benefit from the enhanced features this migration provides.

Euronext investors now have a whole new market to trade, accessible simply by extending their membership. And features from the Borsa Italian trading platform – such as strategy trading, post-trade management and public distribution – will now be incorporated in the Optiq® platform to benefit all Euronext investors.

The Optiq® migration offers ESG-related benefits as well. “Each time we have migrated an exchange to Optiq®, we have reduced our server footprint,” explains Manuel Bento. “When combined with the replacement of other servers and devices with more efficient ones, this has resulted in a 10% reduction in our overall carbon footprint. The fact that Optiq operates from our new core data centre in Bergamo – powered by 100% renewable sources – will positively impact not only our carbon footprint, but our clients’ as well, which now includes our clients in Italy.”

Past migration experiences indicate best is yet to come

When Euronext first launched its proprietary Optiq® trading platform in 2018, it initially went live in four Euronext markets. As Euronext continued to expand the platform to other markets, the benefits of operating on a shared platform became increasingly apparent. “Euronext has a strong track record of integrating exchanges onto our Optiq® platform,” says Chris Topple, Head of Global Sales at Euronext and CEO of Euronext London. “We integrated the cash markets of Euronext Dublin in 2019, and the cash, fixed income and derivatives markets of Oslo Børs in 2020. In both cases, the exchanges experienced an increase in client membership post-migration, as well as increased trading volumes due to the markets opening up to more members and investors, contributing to local market growth and expansion. Thus, we fully expect that this migration will increase Borsa Italiana’s member base and expand the service and product offerings to clients.”

Chris Topple also highlights how harmonisation benefits Euronext and its clients. “Using the same technology for all our cash and derivatives markets means that design and architecture are harmonised, simplifying development and maintenance for both our company and our clients. And we of course continuously work closely with our clients to optimise how they use the platform and support them in making the most of its technological advantages.”

Phase two already underway

Before the completion of the first migration phase, the Euronext migration team had already begun working on phase two, which will migrate fixed income, warrants and certificates to the Optiq®

platform in the third quarter of 2023. The third and final migration phase will cover financial derivatives and commodities and is scheduled for the first quarter of 2024.

Concurrently, Euronext is continuing the expansion of Euronext Clearing to all its markets, with cash equities planned for the fourth quarter of 2023 and financial derivatives and commodities in the third quarter of 2024. "Moving forward, Euronext Clearing will become Euronext’s CCP of choice for its cash equity, listed derivatives and commodities markets, providing a harmonised clearing framework across Euronext venues,” Chris Topple says. “This will allow us to directly manage a key client service and provide a harmonised, reliable clearing framework across all our trading venues. Clients will be able to benefit from cross-margining, balancing all their trading activities in each asset class across six markets. When combined with our single liquidity pool, trading platform and order book, this level of harmonisation will enable us to improve end-to-end efficiency and address market fragmentation, for the benefit of all our clients."