It was Spain's turn this week to host the latest in our

series of global Fragmentation Forums. Around 50 of Spain's top

financial executives gathered at the Miguel Ángel hotel in

Madrid to discuss and debate the future of Spain's equity

markets.

Spain is a unique outlier in the

global fragmentation 'experiment'. Despite

being part of Europe and subject to the MiFID best execution

requirements introduced in November 2007, alternative venues have

found it almost impossible to establish a foothold there. This is

borne out by the data. Whilst the

target="_blank">FFI of most of Europe's major

indices has been well above 2 for a good while now, the

FFI of Spain's benchmark

href="http://fragmentation.fidessa.com/stats/index/IBEX.html"

target="_blank">IBEX 35 has risen from 1 in 2007 to

just 1.05 today. There are a number of

href="http://fragmentation.fidessa.com/2009/07/30/y-viva-espana-%E2%80%93-30-july-09/"

target="_blank">structural and cultural reasons for

this but maybe that's all about to change. The peculiar

reporting rules that concentrate flow on the

href="http://fragmentation.fidessa.com/stats/exchange/MAD.html"

target="_blank">BME are about to go which may well

open the floodgates for the alternative community. It's certainly

worth them trying as volumes in Spain are roughly equivalent to

those in Switzerland where the alternative venues have been

piling in for a while now. As with all markets the real issue

will be the enthusiasm of the HFT community to support the

alternative MTFs. Ironically the

href="http://fragmentation.fidessa.com/stats/exchange/MAD.html"

target="_blank">BME holds the key because unless the

HFT community can lay off their alternative market making risk on

the main market Spain will remain unattractive to them.

There may be a good strategic reason, however, for Spain

to open up its market that has nothing to do with avoiding the

wrath of the European regulators. Spain is uniquely positioned in

Europe as many of it banks and brokers have technical and

cultural connections to Latin America. The Latin American markets

are typified by growth and levels of trading activity that far

outstrip those we are seeing in Europe. Many institutional and

retail buy-sides would like to get access to LatAm markets but

the current isolationist approach makes Spain hard to deal with.

If the

href="http://fragmentation.fidessa.com/stats/exchange/MAD.html"

target="_blank">BME were to open up its markets and

expand its

href="http://www.latibex.com/ing/home.htm"

target="_blank">Latibex operations then it might

find it can position itself uniquely in Europe and avoid the

inevitable scrap that will take place between other European

primary venues.

Anyway, it was a lively debate

and so thanks to everyone who participated in making the event as

successful as it was.