European exchange Euronext is to introduce a 'best execution' algorithm, real-time dissemination of off-orderbook trades and new transaction reporting services under preparations for the arrival of the EU-wide Markets in Financial Instruments Directive (MiFID).
Euronext says it will make its new service offerings available to coincide with the introduction of MiFID in November 2007.
The exchange says the new trading algorithm will deliver best price execution on buy and sell orders from its central orderbook, mitigating the need for members to become Systematic Internalisers and deal on their own account through alternative platforms. Such orders may be settled directly by the originating member firm, says Euronext, thus eliminating the cost of clearing and settlement which can represent up to 40% of total transaction costs.
The exchange is also developing a service of transaction cost analysis for member firms and investors, allowing them to verify best execution.
Other MiFID requirements for post-trade transparency will be met through the provision of a real-time publishing facility for members to disseminate data on off-orderbook trades in European equities and ETFs listed on regulated markets in general.
Investment firms will also be required to report all transactions to the competent regulators. Euronext says it will offer a service to enable them to meet this obligation for all securities listed on Euronext markets, as well as for other European equities and ETFs listed on regulated markets.
Latency and liquidity will be key to marketplaces operating under the new regulatory framework. Euronext says order-processing and data-dissemination capacities on its NSC platform more than doubled in 2006, cutting response times by over 50%. The exchange says migration to Linux-IBM technology in early 2007 will further enhance the speed and flexibility of the system.
The traditional exchanges will be facing increased competition from new market operators and investment-bank backed consortia when MiFID become law.
US exchange operator Nasdaq has told the Financial Times that it is in dialogue with Project Turquoise - a bank-backed collective effort to develop a new exchange trading platform - about using its technology should its hostile bid for the London Stock Exchange fail to win over LSE shareholders. Nasdaq CEO Greifeld says the exchange is prepared to bide its time and wait up to 18 months in anticipation of a drop in the LSE's valuation as the new competitive conditions kick in.