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Chats, BIX, and the battle for Europe

Back in August last year rumours abounded of a tie-up between rival MTFs Chi-X and BATS Europe and, just before Christmas, it was confirmed that the two parties had now entered exclusive negotiations. This got me thinking about the true significance of such a deal and what it might mean for other MTF operators.

The chart below shows the combined market share of the major European indices for BATS Europe and Chi-X compared to other primary exchanges. To be fair, I have included all LSE Group venues as one (i.e. LSE, Turquoise and Milan) and treated NYSE Euronext (Amsterdam, Brussels, Lisbon, Paris and NYSE Arca) and Deutsche Börse groups similarly.

The result shows pretty emphatically just how powerful a combined entity would be. It also helps highlight what has really happened to equities trading since the introduction of MiFID. The whole axis has changed and is now conducted very much along pan-European lines rather than national boundaries. As the primaries continue to try and find ways to outmanoeuvre each other (let alone the MTF community) this trend only looks certain to continue. What also looks certain is that four major exchanges all trading the same pan-European ‘product’ seems like overkill unless they can come up with some clever ways to differentiate themselves and/or appeal to different trading communities.

This would seem to apply just as much to the smaller MTFs such as Equiduct, Quote MTF and TOM as they will need to find successful niches in order to compete with the one-size-fits-all big boys.

Anyway, it looks like if the deal goes ahead then the battle for Europe will have entered a new and intriguing phase.

Meanwhile, it seems like my last blog on HFT – Debunking the HFT myth – has ruffled a few feathers. Comments on the Tabb Forum version seemed to be pretty anti-HFT yet the poll we conducted on our own site seemed definitely to support the HFT community. Personally, I don’t really take sides but do believe that you should be able to make an informed decision.

On this point, have a look at another report – this time from the Netherlands Authority for the Financial Markets (AFM). If anyone else has any position papers on the subject then I will be happy to make them available on this forum.

Happy New Year to everyone in our Fragmentation community, which now numbers many thousands. Thanks to everyone for being a part of what we are trying to do here.

 

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Comments: (2)

Kiri Self
Kiri Self - TRG Post Trade Services - London 07 January, 2011, 09:15Be the first to give this comment the thumbs up 0 likes

Very interesting article Steve. One does wonder what is going to happen in the Clearing space at the same time... A similar battle could take place for the flow, creating all sorts of interesting repercussions (particularly if interoperability is delayed yet again).

A Finextra member
A Finextra member 07 January, 2011, 11:22Be the first to give this comment the thumbs up 0 likes

Thanks for the comment Kiri. You're right that the fragmented clearing picture in Europe is a real issue. As the long-awaited move away from vertical clearing silos towards true interoperability materialises, then this will make it even easier to trade across multiple venues. If this ever led to a single 'virtual' clearer, then we may see fragmentation in Europe approach those levels seen in the US.