European fragmentation in focus

It’s been interesting to watch the European MTFs jockeying for position over the summer. Seems like Chi-X is continuing to grow its market share of all European indices fairly steadily, whilst the relative market shares of Bats Europe and the LSE’s Turquoise could be starting to invert.

This could possibly be down to Turquoise’s spangly new matching platform attracting the HFT folks, or perhaps it’s simply that the market is rebalancing itself in anticipation of the merger between BATS and Chi-X Europe. Assuming that BATS and Chi-X do complete their merger, then it’s only natural for the combined volume to shrink back a bit as there will be fewer order books around to make prices or match flow on. Turquoise has also learnt the effectiveness of price promotions, especially in seizing market share from NYSE Euronext and Deutsche Börse.

On this point, it’s also worth taking a look at Deutsche Börse’s own pan-European platform, Xetra International Market (XIM). Although total volumes are still modest, it looks like the Germans have learnt the same lesson about focus and how it is the key to wresting market share from your competitors. The chart below shows that whilst market share for XIM in most indices has fallen, it is making really good progress in Italy and growing its share of the FTSE MIB.

By focussing all your efforts on one index, it’s possible to create real momentum and compel participants to consider your alternative venue in their routing tables. This is what underpinned Bats Europe’s approach and was why it was able to be so successful without being either first (like Chi-X) or having ready-made liquidity provision (like Turquoise).

Finally, when will something ever happen in Spain? I keep tapping the fragmentation dial for IBEX but as you can see it’s hardly budged. Despite promises to open up clearing, the Bolsa de Madrid still has over 98% share of its primary index. Given that the Spanish market is the sixth largest in Europe (based on our data for July) it would seem to be a prize that both primary and alternative venues should be striving for. I wonder if we’ll see things change in Spain by the end of the year and, if so, whether it will be one of the pan-European MTFs that dominates that market or a local Iberian variety?