CLOB stifles innovation ?
September 14, 2010
Thanks to Matt for the heads up on this article. In pt III Tusar asserts that Trade-At “essentially creates the CLOB [consolidated limit order book]–the thing that everyone agrees would stifle innovation.” Now my knowledge of algo equity execution is certainly not state of the art. But it’s news to me that there’s a body of opinion that thinks CLOBs stifle innovation. Certainly the advantage of CLOBs is that they aggregate liquidity for a security, and provide a public, visible live price during trading, and a record of open and close prices too. They also tend to come with clearing arrangements. This is exactly the arrangement that the industry has been inching towards for the OTC stuff that was so problematic in 2008, with the introduction of swaps clearing, which should improve transparency.
I suspect that Tusar is talking his own book. Plus ca change ! Of cause major broker dealers like Goldman want “innovation” in the form of multiple dark pools and execution venues, including their own. That leads to fragmented liquidity, which causes opacity and hinders price discovery. Which is good for Goldman, and bad for clients who will need expensive Goldman execution services.
Update: there’s an enlightening discussion of Trade-At here.