@JSelway3 @AlgoTrdr @ltabb @BenConnault curious how you think about this, thx in advance
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Genuine questions for equity market structure Twitter: 1. Will off-exchange market share keep going up or is there a % where the trend slows/stops? 2. What does a world with 100% off-exchange market share look like? Is that even possible? I appreciate any opinions/inputs...
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OTC markets free ride on price formation in lit markets
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So I guess the question becomes what's the biggest ratio of off-exchange/on-exchange volume that still supports normal price formation?
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With respect to (2), it’s possible (with some degree of displayed liquidity) but purely hypothetical. Systematic internalisers under MiFID II are required to stream quotes, but they have quite a bit of leeway in providing dark liquidity (now subject to the tick size regime).
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That would be the world of “market-making trading venues”?
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Honestly it is frustrating there is no point of view on this from the regulators. They get obsessed about everything else. You wd think the integrity of price formation would be a critical issue...wish I knew the answer but don’t! Hope someone on FinTwit does.
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Cant happen because open and closing auctions are increasing in importance and are dominated by primary exchanges. That said, lets decompose the question into scenarios:
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1/ Retail trading - which is growing and is dominated by aggressive order flow that gets better execution quality off exchange from market makers. Institutional trading -- which needs to be looked at by the market structure used:
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Sub-penny pricing via variable ticks would assist lit markets to be more relevant. Part of the answer...
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