UK Equity Trading Volumes Diluted by Previous Trade Reprints

Only 65% of turnover in the UK, Europe’s largest equity market, is actually meaningful and executable liquidity, with 35% consisting of ‘noise’, or reprints of already already-conducted trades. According to the Tabb Group in ‘Breaking Down the UK Equity Market: Executable Liquidity, Dark Trading, High Frequency and Swaps’, cash trading is further diluted by a plethora of execution channels, as well as alternative products, such as contracts-for-difference (CFD), and the true size of the investor market is masked by high-frequency trading.

The study sought to achieve five objectives:

1. Demonstrate how much of the daily traded turnover is made up of meaningful, executable liquidity and what is just ‘noise’.
2. Shed light on the make-up of the opaque, over-the-counter (OTC) market and help clarify the debate about this large part of the market.
3. Determine how much of the UK market is conducted in the electronic dark market.
4. Show the levels of activity among different market participants and establish how much turnover is attributable to high-frequency trading (HFT).
5. Size the CFD market by determining how much UK equity trading is done on swaps versus cash and, therefore, how much equity trading is not subject to stamp duty.

As a result, Tabb estimates that while OTC-reported turnover accounts for 45% of the market, less than a quarter of it is executable. The balance is in fact comprised of reprints of already-traded turnover with 72% of executable liquidity being traded on the lit order book of an exchange or multilateral trading facility (MTF). Meanwhile, dark trading accounted for 11% of executable turnover.

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