The seminar discusses the importance of smart order routing (SOR) in navigating a fragmented market, highlighting how SOR can consolidate real-time price data and manage liquidity across various trading venues. It emphasizes strategies like exhaust and synthetic SORs to optimize trading processes and improve execution costs. Additionally, it points out the shift towards internalization of customer orders, which has become necessary due to increased market fragmentation.

1. The need for smart order routing in a
fragmented market
Burgundy Seminar - How to stay competitive in a fragmented market!
10 September, 2009
Philippe Ramkvist-Henry - Business Expert, SunGard Front Arena
www.sungard.com

2. Sell Side business – Today
Data vendors Networks
(Reuters, Bloomberg)
Industry View
Other
banks
Institutional FIX
FIX
Customers
FIX
Tel
Stock
Exchanges
FIX Sales Execution
and
Persons MTFs
Excel Traders
Programs
DMA client SMART
Retail
Customers
Derivatives
web Order Network & Exchanges
Internal Market MiFID
TNP SDK
Orders Reporting
IOI’s
(indication of interest)
Trades Routing
Internal Matching
Trade Adverts Rules Internal of Order flow –
Branch
Offices
Matching Manual or Automatic Warrants &
Structured Prod.
Exchanges
Integration
Bank Bank Bank
System System System

3. There is only one market!
Consolidation Fragmentation
Ownership consolidation
New owners
Fewer platforms
New platforms
Orderbook liquidity fragmentation

4. Before – Recent – Now – StatoilHydro
Screenshots are from the test systems!

5. What does a SOR do?
Can connect and trade on multiple markets
Uses realtime consolidated price view
Where is the liquidity?
What are the prices?
What’s the multi market spread (EBBO of connected markets)?
Manages venue specifics
Rount lots
Hours of service, trading phases etc
Tick Sizes
Preference venues based on
Prices, Liquidity, Phase
Market Share
Execution & Settlement costs (price promotions etc)

6. Strategy example (Exhaust)
Volume available
No volume available
Bank using
Internal Market
Internal Market
Order
Instruction
SMART Algo: SMART
SMART
“Exhaust”
• Order moved to the markets in sequence.
• Remaining quantity moved to the next market.

7. Synthetic SOR Strategies
Use out-of-the-box in combination to create unique strategies
suiting your business.
Exhaust, Sweep
Post, Post Best, Spray
Cross Protect
Hunter
Retail order flow
Sweep, Post (to Primary), Cross Protect
All parameters hidden to user
RetailStrategy
Institutional order flow
Exhaust, Post Best
Some parameters available, example: MinQty
InstStrategy

8. Exhaust example – Audit log (example 1)
Sell 50 000@70,5 executed in full at Chi-X at the
average 70.5337! ~4,8bps improvement

9. Detail
Order is sent as IOC 50 000@70,55
7974 is matched (all visible and Iceberg qty at 70,55)
Order is returned to SMART for new decision
Someone adds 4 961@70,55!
Only possible to discover this newly added liquidity with low
latency market data!
SMART discovers the new 4 961@70,55
Order is sent as IOC 42 026@70,55
etc...

10. Exhaust example 2 - Audit log
Price improvement on Hits the market 10 times!
21084 shares! Chi-X, Burgundy, SAX
50 000@76,008
~1,1bps improvement

11. Burgundy Statistics – August 2009
9,7%
8,2%
8,8%
17,8%
8%
Note! Chi-X, NEURO, BATS etc are missing from market share statistics

12. Sell Side – Do you need to own the SOR?
You’re working for the buy-side
Add value!
Don’t use buy-side tools
Differientiate!
Oustsource your flow?
Stay in control of your valuable assets!
Be transparent with your customers!
Internalization of customer order flow
Difficult when acting on multiple markets
Integrate SOR in your ALL you orderflow
Leverage increased automation and transparency!

13. Internalization of customer order flow
Before MTF’s
Crossing customer orders facilitated by exchange
Internalization not really needed
With the MTF’s
With more fragmentation likelihood of two customer orders being
at same venue is lower.
In order not to decrease chance of execution in-house
internalization needed.
Necessary Solution
Smart Order Routing with Internalization interaction
Withdraw of moved crossing orders in the market

14. More statistics – OBX Market share
About 5-7%
traded away
from Oslo Börs
Already
reached +11%
one day!
Data from BATS, http://www.batstrading.co.uk/market_data/venue/index/OBX/

15. More statistics – OMXS30 Market share
Already ~22%
traded on the
MTFs
Data from BATS, http://www.batstrading.co.uk/market_data/venue/index/OBX/

16. History repeating?
OMXS30 7 Months ago
OBX 1 Month ago
20% traded
outside Oslo Börs
in 6 months?

17. Thank you!
Philippe Ramkvist-Henry
Business Expert – Order Management and Distribution
SunGard Front Arena
Philippe.ramkvist-henry@sungard.com
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