I was interested to see that Chi-X have announced good profits and this set me thinking about how they will fare in the next year, as all the other new trading venues come in. So far Chi-X has had it their own way so far but surely times will become tougher
with greater competition.
Virtually all MTFs offer broadly similar services and all tend to promote the speed of their system as a selling point. However, the speed issue is the least reason why anyone would use one system over another. It reminds me of the old joke about electricity
companies selling the speed of delivery as a benefit. ‘It's bloody fast and always there when you need it!'
Assuming the speed of light is the end benchmark that all the geeks are aiming for how important is speed?
In volatile markets speed can be a real risk if sale orders are executed when the real opportunity is to buy. Algorithmic trading has enormous values but can never replace the human brain in assessing the overall direction of the market and the gut feel
that sets good traders apart from great ones.
All the MTFs have very similar clearing capabilities with Equiduct probably the standout with a great deal more flexibility for the user. Some might say this is a weakness but in my view it is a great strength.
The Stock Exchanges are all able to compete with MTFs on speed but also have the important ingredient of history and power behind them and they are not going to role over and let their business drip away.
One MTF executive told me when I questioned them on the differences between MTFs, the competition and their survival chances that they expected to be bought by another MTF or more likely a Stock Exchange before liquidity and costs come into it. So is it
just a game of setting up a business and system for ex millions only to sell for a profit as soon as possible. Perhaps that is where the real difference lays, the price of exit!