In a more competitive MiFID world, will exchanges admit all EEA listed equities for trading?  It seems like they either continue to be a domestic “corner shop”, just offering local produce in competition to new bank/broker-driven execution venues that can trade every equity in the world, or they turn into a “hypermarket” where you can buy absolutely anything.

For decades, exchanges have admitted non-domestic stocks for trading – that has been the basis of SEAQ International in the UK, the Freiverkehr markets in Germany, etc.  CESR will be nominating 500+ EEA equities that will be classed as “liquid”, and internalising orders in those equities will be part of what classifies an investment firm as being a “Systematic Internaliser”.

Will exchanges admit all of these 500+ shares for trading, in order to compete against the bank/broker-driven execution venues?

Will this fragment the market? Probably, but not much, if we follow the reasoning that order flow moves towards where there is already order flow to match against.  Will an exchange that has admitted a foreign stock be able to give its own local members a view of what is happening in the principal market(s) for that equity?  It could, but it would then have to buy a price feed from each of the other competing exchanges/venues and pay them per-terminal fees for delivering the data – an expensive, highly competitive and administration-intensive new business to get into where it would have to go head-to-head against Bloomberg, Interactive Data, Reuters, Telekurs, Thomson Financial, etc.

One of the functions of a stock exchange today – and perhaps the most important function of any exchange - is to ensure that there is market transparency in the instruments that it lists and admits.  Can it continue to do that cost-efficiently in a new EEA-wide market with competing execution venues?