Celent Communications has analyzed execution quality
data reported by major executing market centers, which are required by SEC
Rule 11Ac1-5 to report these data on public Web sites, to compare
execution quality among similar market center models. Celent is publishing
the results of its analysis in a series of nine reports.
The first of these reports, "Execution
Quality in Equity Trading: Electronic Communication Networks,"
compares execution certainty, speed, price, and spreads among six ECNs:
Attain, Brut, Instinet, Island, Nextrade, and Tradebook. The findings
contradict certain perceptions of best execution by ECNs, which are known
for fast executions but somewhat inferior prices.
In addition to the findings related to price
improvement, other findings include:
Speedy executions are not as speedy as expected from
electronic trading platforms. Marketable
orders on some ECNs wait as long as 3-5 minutes for execution. Results
vary by ECN, but BRUT has among the lowest average speeds in the listed
markets.
Certainty of execution on ECNs is not so certain. "Averaging
the execution rates of all market participants included in this report
series (including ECNs, specialists, market makers, institutional and
retail brokerages, among others), 83% of marketable share volume is
executed. In contrast, ECNs execute only 39% of their marketable share
volume."
According to Jodi
Burns, the report’s author, "This report will shatter
stereotypes about ECN execution quality. Electronic trading platforms
lacking specialists or market makers can still provide superior prices.
However, using an electronic trading platform does not guarantee an
immediate execution. In fact, several marketable orders waited more than
three minutes for execution, which is an eternity in today’s
markets."
However, the author cautioned that, "these
execution quality statistics can be a reflection of the nature of order
flow going to a particular market destination, rather than reflecting the
execution quality provided by that market destination."
This nine-part series will also examine execution
quality for: national specialist firms, regional specialist firms,
exchanges, institutional broker-dealers, retail broker-dealers,
wholesalers, national full-service firms, and regional full-service firms.
The 81-page report contains 45 tables and 12
figures.
