Over a few years, the number of ATS’s has risen from a few to a few dozen, each with its own unique characteristics and rules. In many ways, the distinction between dark pools and lit pools has broken down, with large volumes of hidden orders trading in displayed markets, orders being internalized in broker pools on their way to the open market, and a complex and generally obscure set of routing relationships and IOIs among all the venues and services. Effective navigation of today’s fragmented liquidity landscape consequently requires ever more effort and investment in quantitative monitoring and research into countermeasures. In this paper, we highlight a few examples of the surprising and disturbing effects we have discovered, and a few of the countermeasures we have developed to protect execution quality while still providing access to as much liquidity as clients demand.
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