The value of the stocks they match is crashing and surging by record amounts but for Europe’s incumbent exchanges and their upstart multilateral trading facility competitors, it is clearly business as usual.
This September, Euronext announced plans to become the first of Europe’s incumbent exchanges to launch a pan-European MTF, taking on established rivals in their home markets and new competitors such as Chi-X and Turquoise. NasdaqOMX confirmed that it was set to launch its own pan-European trading platform on September 26, just six months after announcing its intention to do so. The news followed a recent announcement from the London Stock Exchange about plans for a pan-European dark pool and was preceded by news that Deutsche Börse was also studying the possibility of launching an MTF.
Euronext’s plans for an order book MTF to trade European stocks outside of its home markets in France, the Netherlands, Belgium, and Portugal comes just months after the exchange group announced plans to launch a dark pool for block orders, called Smart Pool, that is due to launch this month and that it is developing with BNP Paribas and HSBC.
"The reasons are quite simple," explains Cees Vermaas, executive director at Euronext. "We want to take advantage of the opportunities provided by Mifid to create a complete offering for our clients in Europe."
The new MTF, referred to internally as Octopus but with no official name as yet, will be based on the NYSE Euronext group’s latest trading platform, to which its existing regulated markets in the US and Europe will be migrating by the end of the year.
Euronext hopes to steal an advantage over its MTF rivals by being able to offer trading on its new platform immediately to all 200 of its existing members without requiring them to do anything more complicated than signing a form. New entrants typically have to market themselves heavily to sign up new members, which then have to arrange new connections to the platform.
Euronext’s planned MTF will target the same high-frequency traders as other MTFs, including Nasdaq’s, with high-speed, low-latency technology and the same kind of low cost "maker taker" pricing model that aims to attract liquidity by paying traders to post orders on the system and charging only those who execute against them. The same pricing model will not, however, be extended to clients using Euronext’s existing regulated markets, even once they share the same platform.
European ambitions
"The new pricing model won’t be extended to trading on our existing regulated markets because these are benchmark established mature markets whose liquidity should command a premium," explains Vermaas. "In the future it’s possible that these might converge but not immediately."
Nasdaq’s European ambitions include not just plans for what it claims will be the fastest and the cheapest MTF in Europe but also a swipe at some of the lucrative listings business that it has lost to the London Stock Exchange in recent years. Nasdaq plans to register as an exchange with the UK’s Financial Services Authority and follow in the footsteps of rival NYSE Euronext by launching a service to make it easier and cheaper for companies to simultaneously list in Europe and the US, which it hopes will entice more companies to undertake IPOs on its markets.
Nasdaq’s pan-European MTF will use the same Inet platform that it uses in the US. "We will be the fastest MTF out there," promises Charlotte Crosswell, chief executive of Nasdaq’s pan-European MTF. "Our platform can execute trades in 250 microseconds (a quarter of a millisecond) which will give our high-frequency trading clients who want to be at the front of the queue an important advantage."
Nasdaq is also betting that the familiarity and proven reliability of its platform will prove an attraction to clients, particularly after the collapse of the LSE’s new TradeElect system earlier this month on the day of a substantial market rally refocused attention on reliability.
The exchange is also bringing with it experience of competition in the US and the smart order-routing technology that it believes will be crucial.
"You cannot overestimate the value of our experience in the US," says Crosswell. "Years of competition there have seen market share move away from the incumbent exchanges and fragment. Today, Nasdaq trades a greater volume of NYSE securities than the NYSE itself."
Nasdaq’s smart order-routing technology will automatically send unmatched orders on to other exchanges and MTFs for them to get executed, relieving traders’ fears that orders sent to an unestablished venue will be wasted.
The Nasdaq MTF’s trades will be cleared through EuroCCP, the same solution followed by Turquoise, while Euronext has opted to allow its MTF’s users the choice of either EuroCCP or EMCF, the clearing facility built by Fortis and used by Chi-X. London Stock Exchange Group also announced plans this month to introduce competition in clearing for UK securities. Clients of the LSE will now be able to clear trades on X-Clear, a division of the Swiss SWX group, as well as on LCHClearnet.
The LSE said it would use X-TRM, a post-trade router acquired from its puchase of the Borsa Italiana group to manage the trade flows between two competing CCPs and onward to settlement across its markets.