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Multilateral trading facilities: Brokers plan exchange tie-up

Just six years after deciding that they would be best served by exchanges run for profit and owned by institutions other than themselves, investment bankers have conspired to try to undo their mistake.

Seven leading investment banks – Credit Suisse, Citigroup, Deutsche Bank, Goldman Sachs, Merrill Lynch, Morgan Stanley and UBS – which together account for about half the trading volume on Europe’s exchanges, this November announced that they were clubbing together to develop a mutually owned pan-European multilateral trading facility (MTF). Such an institution, run at cost and developed according to their needs, they argue, would do a much better job than the profit-driven exchanges they not long ago agreed to unleash.

Record results

The announcement comes after another set of record results from Europe’s leading exchanges, which once again highlighted the extent to which they have profited from rising trading volumes at the expense of their customers.

Volumes are rising because of the ever-increasing use of electronic trading tools and strategies that favour breaking large trades into many smaller ones in an attempt to reduce transaction costs.

The new venture, made possible by regulatory changes in the EU’s Markets in Financial Instruments Directive, comes hot on the heels of the launch of Europe’s first MTF, Chi-X, by Instinet, the electronic agency brokerage recently acquired by Nomura.

Shares in Europe’s three biggest exchanges plunged by about 5% on the news.

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