For When Size Matters
In January 2023 Cboe had gained an edge over Xetra w.r.t. duration of having a better price - 13.4% vs. 8%, i.e., at any given time and DAX40 constituent there was a 13.4% probability that Cboe showed a better price than Xetra. Xetra had a better price with only 8% probability. But most of the times, the BBOs match.
But even then, just the price painted only part of the picture. When Xetra had the better price, 17 kEUR in notional were posted at this price vs. only 7.5 kEUR on Cboe. The factor of 2.5X for liquidity at BBO also held when prices matched.
Fig. 1 below based on more recent data shows (a) that Xetra regained the lead in terms of price and (b) retained the lead in terms of liquidity and (c) adds depth information. The chart compares the volume-weighted averaged price of trading a given notional (horizontal axis) between both venues. The color coding is based on the difference (in basispoints) of the VWAPs. The vertical axis is the fraction of time for which a particular price difference was observed.
The left-most edge (100 EUR of notional) represents the case where one only looks at the best price regardless of volume. The length of the left edge of the green area then represents the fraction of time for which both venues had the same BBO. The blue edge (marked as 12.5%) represents the time for which Xetra has a better BBO than Cboe - typically by one tick, hence usually between 1 and 5 bps. The left edge of the grey grey section (7.5%) is when Cboe shows the better price.
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Finding 1: Xetra has regained the lead in terms of having a better price more often than Cboe.
Going towards the right we see the comparison for larger trade sizes. We compute the average price that a market order for the given national would get filled at (the two sides are handled independently from each other). If not enough volume is available on the touch then additional deeper levels are traded against until the desired notional have been filled.
Finding 2: The larger the size, the larger Xetra's lead.
Even for a trade as small as10 kEUR, for example, Xetra is strictly cheaper over 40% of the time and this percentage approaches 100% for sizes of 100 kEUR and above.
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