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Capital Markets

Germany: Mifid highlights size difference

Since launching in 2007, Chi-X, the pan-European multilateral trading facility run by Nomura’s Instinet, has made notable inroads into the market for trading German stocks, regularly trading more than 15% of the daily turnover of blue-chip companies such as BASF. At the same time, however, Xetra, Deutsche Börse’s order book, has increased its market share of domestic trading to a record 99%.

Michael Krogmann, Deutsche Börse

"The Xetra Best functionality is really suited to brokers that have to meet the best execution requirements of Mifid"
Michael Krogmann, Deutsche Börse

These two trends, which at a glance seem to be at odds with each other, highlight the different ways in which small and large brokers are responding to the best-execution requirements of the EU’s Markets in Financial Instruments Directive (Mifid).

Smaller brokers are being forced because of cost constraints to either define best execution narrowly as the Xetra price, as opposed to a price quoted on one of Germany’s seven other regional exchanges, or effectively outsource execution to larger brokers. However, the brokerage houses with the biggest wallets, the global investment banks, are investing in technology to enable them to compare and exploit the prices on numerous competing venues.

For the global investment banks, execution has turned into a technological arms race requiring multi-million dollar budgets to stay in the game. The technology needed to exploit new alternative execution venues with different market models such as dark pools in an intelligent way is simply out of the reach of smaller brokerage houses.

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