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MTF NEUROsis - 29 April 2010

Fidessa : Fidessa - 1st January 1970

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NASDAQ OMX confirmed this week that it will close NEURO, its London based MTF, at the end of next month. Given that it was backed by the mighty NASDAQ OMX why did it fail and is this the end of the MTF model as we know it?

It didn't help that NEURO launched at the height (depth) of the credit crisis, but it always seemed to struggle to develop a real identity of its own. Chi-X was first and Turquoise had a bunch of investment banks priming it with liquidity whilst BATS has always picked its fights carefully and punched effectively above its weight. So what's next?

Fragmentation continues on the same trajectory - upwards - and, it seems, is spreading to new areas too. On this point, I was at an event organised by Goodacre and APCIMS on Monday where Citadel's Matteo Cassina and Equiduct's Peter Randall were extolling the virtues of their MTF in the RSP space. This struck me as a good example of what it's all about. Equiduct enables Citadel to bring its very efficient market making to bear on retail order flow. This narrows spreads which is good for best execution but challenges the existing RSP market makers.

The same is true for the mainstream MTFs as they enabled other HFT market makers to step to the front of the queue for institutional flow in a very similar way. Sadly NEURO seemed unable to attract these sorts of players and so was unable to build enough momentum to gatecrash the fragmentation party.

Anyway, I know that NEURO's CEO Charlotte Crosswell and her team are both talented and dedicated so I'm sure they will make their presence felt as the liquidity war intensifies.