Monopolies Bad, MTFS are Good?
First Published Wednesday, 11th November 2009 03:06 pm from Fidessa : Fidessa
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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
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'
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.
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.
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