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I think there are clearly truths here in consolidation. However the trading speed improvements will continue until your hardware and software are so embedded that it becomes a physical impossibility to get any lower latency. However there are 2 more factors
at play here:
1) The introduction of more and more algo and HFT traders will ensure that lower latency solutions continue to ensure the MTF business is rewarded for lower latency
2) Interoperability in the clearing market will allow for falling barriers to entry in the clearing market further reducing the returns on investment for exchanges expanding into clearing.
The only right answer is, as Andy Groves says, 'Only the Paranoid' will survive and the cloudy difference between exchanges and MTF's will continue to get ever cloudier.
19 Sep 2007