Trading Venue Liquidity

It’s quality, not quantity, that matters

A turning point has now been reached across financial markets infrastructure as participants begin to realise the importance of trading venue “liquidity quality” over and above the now outdated concept that “liquidity volume” was most important.

Given the considerable progress in data handling and advanced analytics the concept of “liquidity quality” is now a tangible and quantifiable concept set to change our understanding of trading venues and the relative value of their liquidity pools.

The continued emergence of liquidity quality as a factor in decision making will have impacts across all market participants including the migration of volumes between venues, greater transparency regarding the impact of particular trading behaviours, and enhancement of market surveillance. With these changes come challenges and opportunities, not just for trading venue operators, but also for participants who manage order flow, those placing orders in the market, and regulators seeking to supervise and improve their markets.

“Trading Venue Liquidity - It’s quality, not quantity, that matters” explores the concept of liquidity quality, its advancement, and its imminent realisation. In addition the publication puts forward principles that can be used to define and calculate liquidity quality and liquidity profiles, and finally examines the implications for all market participants and regulators.

Mike Smith – Partner
Benjamin Smith – Partner
Daniela Peterhoff – Partner
Quinton Goddard – Principal

Trading Venue Liquidity