New Research Highlights Variations in Liquidity and Order Book Dynamics Across European Trading Venues
Plato Partnership has released the first report in a two-part academic series that assesses order book quality and price formation in three European markets. This research has been commissioned under Plato’s MI3 academic initiative, which aims to offer open-access insights for all market participants.
The study focuses on liquidity and order book behaviour on major European exchanges and compares these findings with key competitors, including pan-European lit venues like Aquis, Cboe, and Turquoise. Using BMLL Technologies data, the research provides a detailed analysis of how these venues perform in terms of facilitating trades and supporting price discovery. The analysis covers stocks from France (CAC40), Germany (DAX30), and the UK (FTSE100), offering a broader perspective on the trading landscape across these major European markets.
Key Insights on Liquidity
Liquidity, which refers to the ease with which assets can be bought or sold without causing significant price fluctuations, is a critical factor for traders. According to the research, exchanges that host the listings consistently demonstrate stronger liquidity across several key measures. In France, Germany, and the UK, the primary listing exchanges (Euronext, Xetra, and the London Stock Exchange) were found to offer tighter bid-ask spreads and greater order book depth compared to their competitors. This combination of narrower spreads and deeper liquidity means traders are more likely to secure favourable prices, leading to reduced trading costs.
Here are some notable findings:
France: Euronext recorded an average quoted spread of 3.5 basis points (bps), outperforming Cboe (4.6 bps), Aquis (8.8 bps), and Turquoise (5.5 bps).
Germany: Xetra posted a spread of 5.4 bps, significantly narrower than Cboe (6.5 bps), Turquoise (7.2 bps), and Aquis (11.6 bps).
UK: The London Stock Exchange’s average spread was 6.7 bps - slightly better than Cboe’s 7.2 bps and well ahead of Turquoise (9.0 bps) and Aquis (13.7 bps).
In terms of depth, the primary exchanges maintained their lead. For instance, the LSE in the UK offered 36% greater depth than Cboe, its closest competitor in terms of liquidity.
Order Book Dynamics in Detail
The research doesn’t stop at liquidity – it also looks into order book dynamics, examining factors like execution speed, order duration, fill rates, and execution rates. These metrics are crucial for understanding how different trading venues enable trades in today’s fragmented market environment.
The findings reveal that these dynamics vary significantly by venue and country:
France: Cboe demonstrates a clear advantage with faster execution speeds, averaging 38 seconds compared to Euronext’s 59 seconds, and also shows higher fill rates.
Germany: Although Cboe leads in execution speed (49 vs. 54.5 seconds on Xetra), it has a marginally longer order duration.
UK: The London Stock Exchange emerges as the fastest, with an average execution time of around 62 seconds, ahead of both Turquoise and Cboe. The LSE also sustains longer order durations, making it especially attractive for traders using limit orders.
Execution rates, or the percentage of orders that are fully or partially executed, are another critical measure of order book quality. In France and Germany, Cboe has the upper hand in full execution rates compared to the listing exchanges. In the UK, however, the LSE and Cboe perform comparably on this front.
Implications for Traders
These results highlight the enduring strengths of listing exchanges, which continue to offer deep markets and narrow spreads – particularly important advantages for liquidity-hungry traders. However, other lit venues, like Cboe, stand out in certain aspects of order book performance, such as faster execution times and higher fill rates. Therefore, the choice of trading venue will largely depend on the specific strategies and priorities of market participants.
As the first report in a two-part series, this research focuses on the distinctions among Europe’s lit trading venues. The upcoming paper will focus on price formation, providing further insight into how these venues contribute to overall market efficiency.
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