I was chatting with the guys at Fidessa Towers the other

day about what constitutes the "right" business model for venues

in the post MiFID environment. It's an interesting question, and

one the European regulators seemed to completely ignore when they

first introduced MiFID back in November 2007. The evidence so far

is uncertain. MiFID has undoubtedly broken up the monopolies of

the national exchanges and we are all enjoying lower trading fees

as a result. At the same time, though, the industry is struggling

to manage both the increased technology costs and the greater

complexity associated with the post MiFID world. Buy-sides in

particular are claiming that they are paying a high price in

terms of lack of transparency and increased transaction

complexity.

Any basic economic textbook will

tell you that monopolies are not inherently "bad" and that, in

some cases, the customer is actually better served by a

monopolistic market than a competitive one. Maybe this is one

such case? Some of the MTFs that have emerged seem to face an

uncertain future and the broker dark pools that have sprung up

have fuelled the debate over trade reporting and transparency.

Both these issues seem to underline the economists'

argument.

The latest moves by the primaries

maybe give us a few clues as to their view of the world. First

there was the launch last week of href="http://deutscheboerse.com/dbag/dispatch/en/notescontent/gdb_navigation/home/INTEGRATE/mr_pressreleases?notesDoc=757624AA93AE3328C12576620039CB63&newstitle=deutscheboerselaunchespan-euro&location=home">Xetra

International Market (XIM) by Deutsche Börse. XIM

is a segment on the main Xetra system that will contain 99 non

German stocks (i.e. that are listed on other exchanges) that will

now be tradable on Xetra. This looks like the first steps by

Deutsche Börse towards becoming much more pan European in

its approach and will increase its ability to meet the threat of

both MTFS and other primary exchanges.

In a

similar vein, the LSE announced its support for href="http://www.finextra.com/fullstory.asp?id=20710">hidden

orders this week - this will allow it to compete with

the dark order books of the MTFs and brokers. Also, few people

can have missed the announcements that NYSE Euronext has invested

huge sums in href="http://www.ft.com/cms/s/0/2d62bcfa-ad26-11de-9caf-00144feabdc0.html">co-location

facilities (and that the LSE is doing the same). It

seems that the primaries are now playing to their strengths

rather than just launching their own flavour MTFs. Looking ahead

maybe the real battle is going to be between the big guys as they

slog it out for European dominance.

The irony,

of course, is that the market still needs the MTFs in order to

keep pricing pressure on the primaries, yet a multitude of

different venues operating under different rules creates

operational inefficiency in the market as a whole. It would seem,

therefore, that finding ways to smooth out these inefficiencies

must be the goal for anyone interested in keeping the monopolists

at bay.