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July 1, 2008

Getting Filled: Harder or Easier?

By Peter Chapman

There's more liquidity in today's cash equities market, but traders disagree over how accessible it is.

That was the takeaway from a panel moderated by Traders Magazine editor Michael Scotti at a recent Securities Industry and Financial Market Association conference. The sellside and buyside traders on the panel agreed that the soaring volume of the past three or four years has helped get trades done. But they also said it was harder to find that volume.

"Consolidated volume has more than doubled in the last three to four years," Dan Mathisson, head of Advanced Execution Services at Credit Suisse, noted. "That means the trade that once represented 5 percent of average daily volume now only equals 2.5 percent. In general, transactions are quicker. They're a smaller percentage of volume."

Volume is more dispersed, though, panelists pointed out. With the unraveling of the New York Stock Exchange, liquidity has been flung far and wide. Frank Loughlin, co-head of Americas equity trading at money manager AllianceBernstein, told the SIFMA crowd that while there was much more liquidity than four years ago, the challenge was in finding it. "One of the things that spurred the increase in volume is that there are so many choices," Loughlin explained. "There are so many different places where a stock trades simultaneously."

Lance Lonergan, head of sales at Weeden & Co., also cited market structure changes as making the trader's job harder. "How we source liquidity has gotten more difficult," Lonergan said. "Four years ago we were in a price-discovery market. Now we are in a liquidity-discovery market. It is a question of understanding the products out there, and the tool sets the sellside and the buyside have to deal with."

Despite the changes in market structure, traders have adapted, according to one pro. Henry Mulholland, head of U.S. equity trading and sales trading at Merrill Lynch, told the SIFMA crowd that "the industry has been very quick to adapt," and as far as access to liquidity is concerned, the situation "isn't dramatically different now than it was three years ago."

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