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Breakingviews: Rise of the machines

Source: is Europe's leading financial commentary service.

Europe's equity industry is preparing to replace people with machines. Some trading floor chiefs are even talking about an impending arms race, as firms vie to offer the latest execution capabilities so that their clients can make, or lose, that million euros a nanosecond faster.

But will the industry really concentrate into a few execution powerhouses?

During the bear market, investment banks saw little point in investing in the equities business. If boards are now drawing up ambitious plans, it is not because stock prices are ticking up. It has taken the threat of a regulatory shake-up to galvanize this inefficient industry into technological reform.

The UK's Financial Services Authority has proposed making brokers charge separately for execution and other services, such as research, instead of bundling them into a single commission charge. This may only be a proposal, but fund managers are already using it to justify demands for greater power over the quantity of services that they buy from brokers. So Europe's equities industry is planning for a future in which its clients shop around for trading and research far more aggressively than today.

The priority for the larger equities desks will be to safeguard their existing market share.

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