City banks to challenge LSE with rival trade reporting system

City banks to challenge LSE with rival trade reporting system

Ten City banks, thought to include Citigroup, Deutsche Bank, UBS and Merrill Lynch, are working together to set up their own system for the collection and sale of trading data that would by-pass those operated by the London Stock Exchange and other European exchanges.

According to press reports, the banks are holding preliminary talks about setting up a trade reporting system that will take advantage of the changes introduced by the EU's Markets in Financial Instruments Directive (MiFID), which is expected to be implemented in November 2007.

At present, all trades must be reported to the LSE or a recognised exchange, regardless of whether an exchange's systems were used for the transaction. The LSE and other exchanges charge brokers for this service and also for access to the trading data they then provide.

But under MiFID banks will no longer be required to report all trades through exchanges and will instead be able to report trades to any registered entity. As a result exchanges such as the LSE stand to lose significant revenues if a rival bank-backed system is established.

But the LSE, which does not state how much it makes from trade reporting, has remained unfazed by the threat and claims trade reporting is only a small proportion of its broker business.

An exchange spokesman told reporters that the exchange already has an efficient central infrastructure in place for reporting trades and MiFID "will be an opportunity for the LSE to capture new business across Europe as the market opens up".

The banks have not disclosed any details of the trade reporting system, but according to press reports, technology companies were invited to pitch to build and support the new system last month.

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