liquidity and best execution in the uk a comparison of sets.pdfVIP

Liquidity and Best Execution in the UK: A Comparison of SETS and Tradepoint by John Board and Stephen Wells Financial Markets Group London School of Economics Contact author: Dr JLG Board, Department of Accounting Finance, London School of Economics, Houghton St, London WC2A 2AE, UK. Email: j .board@lse.ac.uk Liquidity and Best Execution in the UK: A Comparison of SETS and Tradepoint 1 – Introduction This paper investigates the comparative prices available on the order books of the two UK Recognised Investment Exchanges which offer trading in UK equities - London Stock Exchange and Tradepoint Stock Exchange. In particular, it examines the extent to which trades were executed on the one even though better prices were available on the other. The paper analyses the extent of price improvement opportunities comparing quotes and trades on each market with contemporaneous best prices on the other; and quantifies the extent to which apparent price improvement opportunities in SETS stocks relate to trades that would not be eligible for the order books because of non-standard settlement. Specific comparisons include: the availability of best prices on the two exchanges, the bid-ask spread on each market, occasions when one exchange’s best price was better than that of the other, the depth available at the best bid and offer prices, and the frequency with which trades were done on one exchange at prices inferior to the best price available on the other exchange. Section 2 summarises the two equity markets in the UK with reference to their ownership and microstructures, and section