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Rashomon


Total Posts: 165
Joined: Mar 2011
 
Posted: 2017-01-26 20:15
I have been thinking about this article, as well XTX and BATS/IEX.


I'm trying and failing to form a legitimate question here---I guess I just want to hear what other people think about the space---so how about: Where are exchanges/ECN's/ATV's heading? Why are certain players winning? What is going to make or break businesses in this space?

EspressoLover


Total Posts: 201
Joined: Jan 2015
 
Posted: 2017-01-27 19:59
Over the long-term, the closest thing to Moore's law in finance, is that volumes double roughly every 5 years:

Attached File: tmp.pdf

We've kind of stalled since 2008. So it really depends on your view. Either the process is over (even the real Moore's law can't go on forever), or we'll return to trend. I'll assume the latter. That means in 10 years times, equity markets will be handling about 500% more trading than they are today. Given common estimates of trading volume elasticities, average end-user transaction costs will have fall over 60%.

For US equities most of the major names already trade at $.01 bid/ask nearly 100% of the time. Exchange fees, commissions and market impact matter, but even if those fall to 0, bid/ask spread costs still probably constitute well more than 40% of aggregate t-costs. There's just no way that penny tick sizes can stick around at projected volumes

So either A) volumes break their 50 year trend of continuously rising, B) the SEC implements sub-decimilization, C) nearly all volume goes dark, D) or there's some sort of hack that mimics sub-decimilization on lit exchanges (maybe a market-share coup by exchanges that rebate liquidity takers).

Rashomon


Total Posts: 165
Joined: Mar 2011
 
Posted: 2017-02-08 04:56
thanks EL. So what drives that trend? Is the end game nobody holding any equity for any length of time?
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