Despite a sharp decline in European trading activity towards the end of 2008, multilateral trading facilities (MTFs) have sustained their overall market share, according to a report from investment bank Citi.
The firm’s monthly European Liquidity Report for December observed that the number of trades executed away from major primary exchanges has stayed steady at 12-15% across Europe, largely following the trend for the previous three months.
But a number of venues, both MTFs and national stock exchanges, have reported a downturn in trading. The London Stock Exchange (LSE), for example, reported a 10% year-on-year drop in the average number of trades across the group's equity order books in December and a 49% fall in average daily value. Technology provider Fidessa’s Fragmentation Index reported that the value of trading on all four pan-European multilateral trading facilities (BATS Europe, Chi-X, Turquoise and Nasdaq OMX Europe), plus the London Stock Exchange, NYSE Euronext’s European markets and Deutsche Börse totalled almost €477 million, from the beginning of December to 9 January compared with just over €562 million in November.
“It seems both primary exchanges and MTFs have shared the pain of lower volumes, in such a way that average share of the MTFs’ volume has remained stable as a percentage of total volume from September to December,” said Takis Christias, Citi algorithmics post-trade analytics and author of the report.
Citi's analysis also noted an erosion in Chi-X’s market share in December, in the UK, France and Netherlands. During December, Chi-X suffered a 3.1% fall in overall UK market share, for example, while Citi reported a 9.6% decline in UK orders sent to the platform via its smart order router, with the London Stock Exchange, Turquoise and BATS Europe emerging as the main beneficiaries. Chi-X’s decline in trading activity was highlighted in its Q4 trading statistics, which showed a 7% reduction in share volume and a 17% drop in turnover compared with the previous quarter. Nevertheless, Chi-X, majority owned by Instinet Europe, still commanded a 13% market share in UK equity trading in December, as well as 15% and 10% shares in the Dutch and French markets respectively.
However, the future could be a little brighter for all trading venues further into the New Year. Weekly European market research from Credit Suisse Advanced Execution Services from 9 January noted: “Turnover is slightly coming back to normal on both FTSE 100 and DJ Euro Stoxx 50, after the very low activity of the last two weeks of 2008.”
According to Christias at Citi, features such as price, liquidity, connectivity, latency and total cost will remain at the forefront of traders’ minds when selecting alternative venues, but new users may place a heavier emphasis on post-trade services. “For new trading participants, post-trade costs may cause Turquoise’s attractiveness to fade as Chi-X, BATS Europe and Nasdaq OMX Europe share the same clearing house,” he said.
As competition heats up, with more venues expected to launch throughout the year, including Borse Berlin's Equiduct and NYSE Euronext's NYSE Arca Europe, Christias expects consolidation of trading venues sooner rather than later. “All MTFs will face increased competition in 2009, and with the challenging market conditions, we may even see consolidation much earlier than when it occurred in the US,” he said.