Blog article
See all stories ยป

An article relating to this blog post on Finextra:

Chi-X Europe receives bid approach; Bats Trading in the frame

Chi-X Europe says it has received an "enquiry" from an unnamed party that may lead to an offer for the multilateral trading facility (MTF).

See article

MTF Consolidation it starts

So Chi -X has a mystery bidder! Its not a suprise to me and no doubt others as the MTF model is a lousy business plan in the long term and only great for initial investors looking to grab a return on their investment.

Volume is like the wind! It can change at any time and can move in any direction. Very dificult to hold and maintain so any business just based on volume is going to have a tough time when so many competitors join the market.

The regulated Stock Exchanges will get relief in MiFID two as MTFs will begin being treated as the Exchanges. The regulated Echanges are also fighting back with vertical trade/clearing and settlment services.

Technology speed to trade is one of the main MTFs drivers but now virtually all venues are at similar speeds. What else is the differentiator? Price! Well thats plummeting  and putting pressure on the MTFs.

All of a sudden the MTF business does not look too attractive.

Chi-X is the first and by no means the last as the UK model follows a similar track to that in the US years ago with the ECNs. Dont be fooled by any other conclusion this is the beggining of consolidation     


Comments: (1)

A Finextra member
A Finextra member 15 November, 2010, 17:45Be the first to give this comment the thumbs up 0 likes

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.