Returned from my hols, refreshed and ready to face the

start of the new season. The newswires have been awash with

stories that Turquoise is exploring its "strategic options" by

engaging UBS. Regardless of whether Turquoise is looking at an

outright sale or some other, more subtle, form of partnership the

story did set me thinking about a number of things.

How would you go about valuing any of the new MTFs that

have emerged? What is the right number of these entities that

"should" exist? Has Turquoise now "done its job" in terms of

changing the face of how European equities are traded?

Valuation is tricky as none of the traditional measures

really apply. Chatting to a colleague we concluded that it's a

bit like trying to value a football club. First you have the

stadium and facilities (technology and infrastructure). Next you

have the coach and players (management and staff). Then you have

the supporters (customer order flow). Finally, and perhaps most

important of all, there's the value of the brand itself. All of

these factors interact in the mind of a potential bidder to give

an overall valuation. Of course the major difference is that, in

the case of football, each club can further distinguish itself

through its geographic location and the loyalty of its local

supporters. While this may once have been the case with the

exchanges, technology, demutualisation and MiFID have changed all

that.

The second two questions are

interlinked. For my part, I think claims that Turquoise is now

somehow less relevant are overstated. Its market share has been

holding up nicely since the expiration of the liquidity provision

agreement earlier this year.

Also, just like

the airline business, the low cost operators are required to keep

the pressure on the big guys. If Ryanair and Easyjet were to

suddenly exit the budget airline business then British Airways

would be sure to re-evaluate its price list. At some point, too,

the low cost MTFs will need to adjust their pricing models so

that they can generate a fairer economic return. It will be an

interesting day indeed when an MTF feels confident enough in the

liquidity it has captured to start putting its prices up or, at

least, withdraw all its special pricing promotions.

So, how many MTFs does it take to keep permanent

pressure on the cost of European equities trading? The answer

lies in technology and regulation. The cost of operating a

matching platform has fallen and will continue to fall. Every

time there is a step change in these costs, new venues will

likely appear since it's difficult for the incumbents to

continually capture these efficiencies. If subsequent MiFID

regulation was to follow the US and adopt a prescriptive approach

to best execution, this would go a long way towards breaking down

the barriers to entry in this space. Existing venues would be

forced to onward route orders to any new venue that published a

better price. In this case we might see a perpetual line of new

firms ready to jump into the order matching business with the

latest low cost, go-faster order matching kit.

The real winners in all this are likely to be those

firms that can offer to simplify this growing execution

complexity. Baikal, and Turquoise's TQ-LENS service, are both

good examples of this and, of course, all the major brokers make

a big play of their ability to navigate effectively through this.

Maybe the "how many MTFs" question will be increasingly

irrelevant as all players compete to build their own

one-stop-shop for order flow, irrespective of whether they are

called an exchange, an MTF, a broker or anything else for that

matter.