Thinking in New Ways – 16th July 2009
First Published Monday, 20th July 2009 02:27 pm from Fidessa : Fidessa
The opinions expressed by this blogger and those providing comments are theirs alone, this does not reflect the opinion of Automated Trader or any employee thereof. Automated Trader is not responsible for the accuracy of any of the information supplied by this article.
As I've discussed before, the market disruption wrought
by MiFID was bound to see a jostling for position between the
established players and the new market entrants. For the primary
venues this means overcoming the inertia associated with their
old operating models whilst for the new guys the imperative is to
create real momentum behind their brands.
FFI for the major European indices gives a few pointers as to the
results of these efforts. Whilst fragmentation continues its
inexorable rise across all the major indices - last week the FFI
for the FTSE100 breached 2 for the first time - it seems likely
that we will end up with a landscape that is pan-European in
nature rather than country specific. The data for title="Chi-X analysis"
target="_blank">BATS seems to bear this out as their
respective Top Stocks by Weekly Turnover include stocks from
target="_blank">Turquoise appears to buck this trend
as its "top ten" comprises either UK or Swiss listed stocks but,
nevertheless, the idea that a primary exchange has a divine right
to "own" the trading in its own country's stocks looks
increasingly likely to be a thing of the past.
To meet this challenge the primary exchanges are taking
a number of different approaches. They are creating their own
versions of the nimble, pan-European MTFs that have sprung up as
their competitors. NYSE Euronext has now launched NYSE Arca and
has signed 14 trading members to SmartPool, whilst the LSE has
successfully re-aligned and launched Baikal in just a few months
since the demise of its original partner, Lehmans.
The primaries have started to flex their muscles in
other areas, too. Exploiting their multi- and cross-asset
capabilities is an obvious way to increase the stakes. The LSE,
NYSE Euronext and Deutsche Börse all have capabilities in
the fixed income and derivatives arenas that the new MTFs will
find difficult to emulate, for two reasons. First, there is cost:
the MTF community is still focussed on proving the long-term
sustainability of their existing, equity focussed business
models. This means that strategic investment in adding new asset
classes looks hard for them at the moment. The second is that, at
least with derivatives, the exchanges actually do own the
contracts being traded and so it is much harder for newcomers to
wrestle liquidity in these instruments away from the
It was interesting, therefore, to
read Xavier Rolet's comments this week that the LSE plans to
launch a platform to make corporate bonds more easily accessible
to the UK retail market. This will build on the MOT fixed income
platform that came with its acquisition of Borsa Italiana in 2007
and is a great example of the new thinking that is emerging
within the primary exchanges.