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Somebody's Watching You - 29 September 2009

Fidessa : Fidessa - 1st January 1970

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Spent a busy few days travelling round the Nordics last week. The trip culminated in my participation in a debate hosted by John Lauritsen at the Copenhagen offices of Carnegie that pitched the mighty OMX exchange against Chi-X which has been stubbornly building its Nordic market share over the past few months. Given that up to 20% of some Nordic stocks are now regularly traded on the Chi-X platform instead of OMX the stakes were pretty high. Representing OMX was the imposing figure of Bjørn Sibbern, its Copenhagen CEO, who was pitted against Chi-X's CEO, Mark Howarth. As the debate raged (respectfully) back and forth I was half expecting the mighty Olof Neiglick of Burgundy to leap into the ring as tag team partner for Mark. But, in the end, the debate finished as a well fought draw.

One interesting point that was made concerned the whole issue of market supervision and the obligation that the primaries have to maintain an orderly market and to supervise the trading activities of their members. Mark made a solid defence of his market surveillance system claiming that it was on a par with, or better than, the LSE's but the fact remains that the obligation to maintain orderly trading rests with the primaries not the MTFs. Bjørn pointed out that it was in this area that he and other national exchanges had to incur higher costs whilst the MTFs could "piggy back" on his market. He summed up his position with a good point - if, for some reason, he decided to close OMX Copenhagen tomorrow then no one would trade Danish stocks at all whilst this is not the case for Chi-X (or any other MTF).

Seems like this is a point that the primary exchanges should be making much more noise about since, ultimately, they could refuse to come out to play at all. Instead of trying to beat the MTFs at their own game - price - maybe the primaries should be accentuating their differences.

As the regulatory mandarins scratch their heads over MiFID 2, I wonder also whether the regulators should create a single European body that all listed firms are obliged to report to and that undertakes market surveillance on a Europe-wide basis. This would effectively level the playing field and remove another distinction between the primaries and the MTF world.

One thing that did emerge, though, is that fragmentation in the Nordic region is on the rise and participating firms will need to have a clear view of their strategy for operating in the new environment. This is both a challenge and an opportunity as trading firms that don't have to go through the same learning curve as their European counterparts will be at a distinct advantage. John made this point, too, highlighting the difficulties in knowing exactly where this liquidity is going to. He cited the US where over 50% of liquidity that was traded on NYSE is now traded on dark pools, systematic internalisers and other non-lit venues. Obviously then, accurate information is going to be at a premium as the European picture continues to develop.

Anyway, thanks to John and his team for a well organised event and a great meal afterwards.