Liquidity issues have been at the forefront of equity market structure debate since decimalization. Among other technological innovations, the current shortcomings have spawned a cottage industry of crossing networks and dark pools - from new entrants as well as exchanges and brokerage firms - in the quest for the holy grail: liquidity.
While crossing networks and other alternative trading systems (ATSs) have enhanced liquidity-sourcing capabilities, not everyone has access to all of these trading venues. In addition, the more successful crossing networks become, the greater the danger to centralized liquidity and price discovery, since these "dark pools" minimize the extent of order interaction and the possibility of price discovery. Turning back the clock by going back to "nickels" is neither realistic nor desirable. So what other options can be explored?
The inherent conflict with institutions seeking liquidity without revealing their hands has the most-intelligent market structure observers and algorithmic mathematicians scratching their heads, looking for an answer to the vital question: How can we increase our participation rate without unduly impacting the market? The importance of answering this question in order to make markets more efficient and revitalize liquidity has everyone scrambling for new and improved ways to access different markets and liquidity pools through the use of technology. Consequently, improvements are being made on the algorithmic front that can be implemented across all dark, passive and active liquidity aggregators. These improvements could substantially alleviate liquidity concerns, providing a safer way to advertise liquidity that decreases the risk of missing incoming orders.