Fragmentation Poses a Problem, Buyside Tells Traders Magazine

Four out of five respondents to a Traders Magazine survey say fragmentation in the marketplace poses a problem for best execution. According to the survey, which included 126 buyside firms, slower fills and inferior prices are the major trading issues associated with today’s fragmented market.

At present, the buyside has so many execution venues–exchanges, ECNs and, particularly, dark pools–that their number makes it difficult to reach them all. And having so many venues reduces the amount of information available and makes it harder to trade blocks.

In fact, three-quarters of the respondents say that fragmentation has an impact on portfolios’ performances. Most, though, acknowledge it is slight. Also, when the buyside sends orders to the sellside, the majority say their brokers’ ability to source liquidity is worse today than it was before the rise of dark pools and hidden orders.

Buyside survey respondents also offered their solutions to fragmentation. Exactly 49 percent say that better connectivity between dark pools and exchanges and ECNs would be the best remedy. Almost one-third says that using more algorithms, DMA and smart order routing would solve the problem. And few think the answer to fragmentation lies in using more broker capital or high-touch sales trading. (See Traders Magazine’s April issue for expanded coverage of this story)