Section 2 - FTSE

ECNS RING CHANGES IN THE TRADING LANDSCAPE
86
So far, the recipe has
worked for Chi-X.
Instinet claims that
trading on Chi-X is on
average 90% cheaper
than on the main
European markets. In
August, the trading
platform took a
significant minority of
trading in the largest
shares listed on the
Dutch and German
stock exchanges – two
countries where
domestic law does not
require that all share
trading be routed
through the local
exchange.
A promising start
no doubt but the jury
is out over its long
term performance as
the European
marketplace has yet to
become crowded.
Now, Nyfix intends to
launch Euro-
Millennium, an MTF
for pan-European
listed cash equities in
the fourth quarter
while Liquidnet is
continuing to enhance
its product offering in
Europe. Equiduct,
which was borne out
of the old Easdaq
trading platform,
recently struck a deal
with Börse Berlin -
formerly known as the
Berlin Stock
Exchange. Few details
of their precise
offering are currently
available and there are
concerns that Bob Fuller, head of the venture, is leaving at
the end of October.
All eyes are still sharply focused on the fate of Project
Turquoise, the pan-European exchange being set up by a
consortium of investment banks, including Credit Suisse,
Deutsche Bank, Goldman Sachs, Merrill Lynch, Morgan
Stanley and UBS. It has already selected the DTCC
subsidiary EuroCCP to provide clearing and settlement
services; however, a management team is yet to be
announced. The group
has said it will be fit for
purpose by the first or
second quarter of 2008
but industry pundits
remain sceptical. John
Barker, head of
Liquidnet believes “the
next four years will see
several new entrants
coming into the
European market with
both mainstream and
niche offerings. As
players such as ITG,
Chi-X and Liquidnet
have demonstrated,
there is market share
to be gained although I
think in the end
Europe is smaller than
the US and will only be
able to sustain three to
four different models.”
For now, all the
attention is on
equities, but looking
farther down the line,
there could be limited
opportunities in the
over the counter
space. Paul Winter,
global head of OTC
derivatives, at Fortis
Investments, says,“If it
happens we could see
electronic trading in
the simpler products
such as plain vanilla
interest rate swaps or
forward rate
agreements where
there is a lot of
liquidity. I think it
would be harder to
create an electronic
trading platform in the
more complicated
products such as collaterised debt obligations where there
are more problems with pricing and valuations.”
As Richard Balarkas, head of advanced execution
services at Credit Suisse, puts it, “An exchange type of
mechanism may encourage more liquidity in some of the
OTC derivatives markets but by definition, they are OTC.
There is a lack of uniformity and I think the new venues
will be focusing more on developing products for the
equities market.”
Alan Jenkins, European head of MiFiD at BearingPoint, a UK based
consultancy, agrees, adding,“It does seem that all the acronyms are becoming
synonyms for each other. In Europe, ECNs now have a new name – MTFs -
although they do not get off that lightly and have similar obligations as fully
fledged exchanges under MiFiD. The result, though, will be that liquidity will
fragment further and we will see a proliferation of new data and execution
venues in the first 12 to 18 months of MiFiD. Then in the next two to three year
period, people will start to work out which are the best trading venues and
liquidity will coalesce around a small number of platforms just as it happened
in the US.” Photograph kindly supplied by Bearing Point, October 2007.
A recent study conducted by Aite this past
autumn revealed that exchanges currently
account for about 75% of domestic equity trade
volume, compared to 25% for ATS’. By the end
of 2011, this figure is expected to be whittled
down to about 62%.
NOVEMBER/DECEMBER 2007 • FTSE GLOBAL MARKETS