Market mixed on buy-side ‘ghetto’ - The TRADE Poll
As segmentation of order flow by trading
venues accelerates, market participants are split on whether the practice would
attract the buy-side, according to the latest poll on theTRADEnews.com.
When asked whether they would support
exchange services dedicated to institutional investors 54.5% of respondents to
September’s poll voted ‘yes’.
The poll question was prompted by an
initiative from the New York Stock Exchange in the US to create a new section
on its market dedicated to executing retail orders at a price better than the
approved US national best bid or offer. Approved on a one-year pilot basis from
1 August, NYSE’s retail segment creates a new class of participant on its
market for those firms that service retail orders. A few weeks ago BATS
Exchange lodged an application with the SEC to launch a similar service. On 20
September, NYSE announced it is seeking approval to launch a European version
of its retail market in November.
MiFID heralded the creation of competing
trading venues to rival domestic exchanges in Europe, but Peter Randall, CEO of
Equiduct, a retail-focused investment exchange, questions whether the current
market structure adequately meets the needs of all market participants.
“In the face of regulatory complexity it
appears that some venue operators are voting with their feet and considering
whether it makes sense to have specialised segments on exchanges,” ex Chi-X
Europe CEO Randall told theTRADEnews.com. “While the intention of MiFID was
probably not to create specialist pools of liquidity maybe the protection of
the retail investors isn’t as good as various policy makers initially
Others believe segmentation initiatives can
offer a valuable service to the market, but have to be approached by regulators
in a way that meets the needs of end investors.
“There is market demand for these types of segmentation initiatives as they
could level the playing field and open up a lot of new innovation among
markets,” said Christian Bower, commercial director at Quote MTF, a European
trading venue that has recently launched QUBE, a hosting platform for
alternative markets in Europe. “But the success of this depends on how you
interpret the law, and ensuring policy makers take the approach that encourages
inventive approaches within the current market framework.”
Exchanges that have been forced to seek new
business opportunities because of a depression in equity trading activity
across the globe. Targeting retail flow, increasingly in recent years traded
off-exchange and internalised by liquidity providers that serve retail brokers,
is one obvious source.
But Randall suggests that this investment
is being misplaced, with too much focus on revenue generation and not enough
emphasis on long-term value.
“What we haven’t seen in the last few years
is enough of a push by exchanges to encourage a healthy flow of IPOs,
particularly given the rush to offer technology that suits high-frequency
traders,” said Randall. “Segmentation of order flow could be another step in
that direction, i.e. seeking new revenue opportunities rather than something
that would be of great benefit to the market.”