Over here in Shanghai, at the annual conference of the World Federation of Exchanges, technology may not be one of the agenda items, but market structure and competition definitely is. MiFID is often talked about as a catalyst for change in the market,
and today the example of Chi-X was brought up by one of the investment banks that has been presenting.
In the past, attempts at creating pan-European pools of liquidity have failed, but now for the first time a new pan-European execution venue is attracting really significant and growing order flow.
The chairman of one of the world’s trend-setting exchanges (which oddly enough doesn’t come from North America or Europe) brought up the principle that the “technology-enabled concentration of liquidity” is in the interest of the market and of investors.
In parallel, in a recent presentation by Chi-X it was said that a key technology that has enabled Chi-X to achieve significant order flow and liquidity so quickly has been Chi-X’s use of FIX as the standard format for order entry.
Exchanges in general around the world have been slow in adopting standards, continuing to develop their own proprietary trading systems and market data delivery systems that make it difficult and more costly for their members and their members’ clients to
route orders through to the exchange. Yet at the same time, exchanges want to see single centralised markets (preferably their own) that concentrate liquidity in the interest of investors.
It looks like many exchanges could learn a very important lesson from Chi-X, and from the other trend-setting exchanges. If you want to be competitive as an execution venue you have to concentrate liquidity, and you should use technology to enable that. Chi-X
uses FIX – it sounds like it would make sense for every exchange to do the same, in its own competitive interest.