Simulation for Median Spread data series

Statistics Advisory Group

Liquidity indicators – Median Spread
Marc Berthoud, SAG Vice-Chair

SAG
November 26 2014
WFE Questionnaire to be completed

WFE SAG November 26 2014 2

Comments on WFE top level segmentation thresholds

Ø  The domestic market capitalization was broken down in four segments
according to WFE official thresholds. The segments are defined as follows:

•  Large market cap segment : market cap > USD 1.3 bn

•  Mid market cap segment : USD 1.3 bn > market cap > USD 200 m

•  Small market cap segment : USD 200 m > market cap > USD 65 m

•  Micro market cap segment : market cap < USD 65 m

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Step 1: Segment domestic companies by Market Cap

Ø  Sort the list of all domestic listed companies by descending market
capitalisation.

Ø  Assign each company to one of the standard category (1st level of
segmentation hierarchy as displayed on slide 3) recommended by WFE
(Large cap, Mid Cap, Small Cap and Micro Cap).

Ø  Sub-segment the Large cap category into 4 sub-categories (2nd level of
segmentation hierarchy) containing each an equal number of companies
applying the quartile methodology.

Ø  The Top Quartile sub-category will contain the largest capitalised
company of the WFE Large Cap Category and the Bottom Quartile sub-
category will contain the least capitalised companies of the WFE large
Cap Category.

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Step 2: Compute intraday Median Spread for

Ø  Each intraday inside market record (Top of the book) displays the
Timestamp, Best Bid Price, Best Ask Price .

Ø  The Spread formula is:

[(Best Ask Price - Best Bid Price)/((Best Ask Price + Best Bid Price)/
2)]*10000
It is denominated in non monetary absolute Basis Points (Bps) units.

Ø  The median spread value is filtered out from the full universe of all
individual intraday spread values records for each individual security.

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Step 2: Compute the daily median Spread by Security

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Step 3: Generate one median value by category

Ø  Step 2 has generated one

median spread value for
each security for each day.

Ø  List sequentially all

individual results

Ø  Compute the median value

of the category [Median
value of all listed results]

Ø  See also example available

on the attached excel
spread sheet on Tab T220

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Step 4: populate the WFE questionnaire

WFE Segmentation level 1 Segmentation level 2 for Large caps

(Absolute market cap thresholds) (Quartile threshold based on market
capitalisation)

WFE Segmentation Segmentation Number of Full Mkt Cap USD Median

(Subsets of WFE Large Level 2 Securities Simple
Cap securities Spread in
Bps
universe)

04 Top Quartile (21) 04 Top Quartile 21 1 216 948 307 267 8.41
03 Third Quartile (21) 03 Third Quartile 21 147 667 932 973 15.10
02 Second Quartile (20) 02 Second Quartile 20 63 294 246 890 20.99
SIX Swiss Exchange Month 10/2014
01 Lowest Quartile (21) 01 Lowest Quartile 21 35 518 699 595 36.70

WFE Segmentation WFE Number of Full Mkt Cap USD Median

Segmentation Securities Simple
Level 1 Spread in
Bps

01 Large Cap (83) 01 Large Cap 83 1 463 429 186 725 16.94
02 Mid Cap (90) 02 Mid Cap 90 50 488 494 996 63.87
03 Small Cap (36) 03 Small Cap 36 4 594 555 021 145.57
04 Micro Cap (32) 04 Micro Cap 32 907 018 162 735.20

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SAG members are kindly requested to

Ø  Complete the yellow coloured fields on the enclosed excel template
(main focus).

Ø  Indicate in your reply the potential effort and expected time to
market for your organisation to deliver such additional data to WFE
on a regular basis (indicative nature).

Ø  In case you cannot implement 1/1 the proposed draft methodology,
you can deliver data based on a simplified methodology. In such a
case, please explain the calculation process you applied.

Ø  Comment on potential difficulties faced in the calculation process.

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