Conference Dailys TRADETech Daily 2018 - Page 11

A DV E RTOR IAL Now contrast this to a ranking based methodology (Figure 2). In this approach we score the broker’s ability to access liquidity by ranking the average trade value they achieve in each venue. For example, in Venue 1, Broker E is ranked number 1 with a trade value of 410,000 per execution and Broker D is ranked 6 with an average value of 61,000. We then take the weighted average of the rankings across all venues to determine the overall score for average trade value. Now not all brokers will access all venues, to ensure a reasonable sample dataset we restrict measurement to venues where the broker has executed a minimum of 1,000 trades. In contrast to the first approach, when using the second methodology, Broker F ranks number 5. Sourcing some large blocks on a single venue does not have the same weight to overcome their relatively weak performance across most venues. Broker E is still the top scoring broker because they rank either 1, 2, or 3 across most venues. While all methodologies have their own advantages and disadvantages. The virtue of an approach that combines rankings with averages is that it rewards consistency of broker results when interacting with pools of liquidity. Obviously average trade size is only one Figure 3: Broker Scorecard Based on Overall Rankings Broker Scorecard – Overall Ranking Broker Avg. Price Trade Im- Size pact Adverse Pct. of Price Price Im- Spread % Trade Eff. Trade Selec- Moves - 1 prove- Capture Through Spread Benchmark tion Second ment Perfor- mance Avg. Rank - All Metrics Over- all Broker Rank Broker A 3 5 2 4 5 1 3 2 1 2.9 1 Broker B Broker C Broker D Broker E Broker F 2 6 1 6 4 3 2 5 4 3.7 4 4 2 3 3 1 4 1 3 6 3.0 2 1 4 6 5 6 6 4 4 2 4.2 6 6 3 5 1 2 5 6 1 3 3.6 3 5 1 4 2 3 2 5 6 5 3.7 4 metric. Other metrics evaluate broker per- formance with respect to minimizing post trade price movements (both price impact when removing liquidity and adverse selec- tion when adding liquidity), spread capture, price improvement versus the far touch, minimising the number of trade throughs and other factors in measuring overall bro- ker pe &f&6RvR6VFR'WBFv&FW"WfV&V6&27V62RЦVFF6'FfBFW'fetFRfW&V7W&VVB2FW6R&W7VG0&R6FWVFVBvVFR'W6FP6ƖVBvfW2FR&FW"FFR'&W"7FV@vRWB&Rf7W2W&Rr'&W'0FW&7BvFFR&WBB7V6f6ǐFfGVfVVW2FV7W&RrvVFW&RvrFR'W6F^( 2&FW"frfW&&涖r66&V6&B֖vB6WFrƖRfwW&R2&fR7&VFrVvgV'&W"66&V6&@f"G&FrW&f&6R27F&VFfRЦǒV&ǒF26&VBFFW"7V7G0bV7W&r&W7BWV7WF7FB0'FBFf"F&r'&W W&f&6R2'BbFRfW&'W6FPfW7FVB7G&FVwvRV6W&vR&PFwVRF2&V&WGvVVFR'W6FR6V6FRBǗF2fVF'2vFFRvFFWfV67FF&G2f"66&rUB55TPE$DRDT4DRdd4$UdUrbE$DUDT4#Fǐ%$dr#f"&Rf&FV6R6F7B&26&Ɨ76V&26&Ɨ76VFWG&FVWw26CB#r3r3p