Burgundy sale reinforces call for new wave of competition

Oslo Børs has agreed the acquisition of Nordic-focused market Burgundy, providing further evidence of an increasingly challenging environment for alternative venues in Europe.

Oslo Børs has agreed the acquisition of Nordic-focused market Burgundy, providing further evidence of an increasingly challenging environment for alternative venues in Europe.

The Norwegian exchange – the only Scandinavian stock market that isn’t owned by Nasdaq OMX – said it plans to continue the development of Burgundy’s business, such as through the listing of exchange-traded funds, structured notes and warrants.

Burgundy was set up by a consortium of 14 Nordic financial institutions and launched in May 2009. It offers trading in over 1,000 Swedish, Norwegian, Finnish and Danish shares, as well as warrants, exchange-traded funds and certificates.

Oslo Børs will retain Burgundy CEO Olof Neiglick and plans to set up a customer-based advisory board in Sweden, the venue’s most successful market. Last month, Burgundy traded 3.3% of Swedish blue chips.

Burgundy, which has 34 trading members, will also switch to the London Stock Exchange’s Millennium Exchange trading platform next year from its current system supplied by Swedish technology vendor Cinnober. Oslo Børs is planning its own migration to Millennium Exchange next month.

While admitting low levels of equity trading contributed to Burgundy’s decision to sell, Neiglick said teaming up with an established domestic exchange would let the firm pursue its next phase of growth.

“Low trading volumes were a factor, but the strategic element is also a major part of this deal,” he told theTRADEnews.com. “By switching to Millennium, we will have a shared technology infrastructure with exchanges in Oslo, London and Milan, which automatically puts us on the radar of over 400 brokers in Europe and beyond.”

Neiglick added Burgundy was planning to offer corporate bonds on its platform after the deal is finalised, revealing he was already in talks with a few Swedish companies over a potential listing.

Since launching in 2009, Burgundy has built up a 2.3% share of trading across Swedish, Finnish, Danish and Norwegian stocks, according to September market share figures from Thomson Reuters. The largest multilateral trading facility (MTF) for Nordic stocks last month was BATS Chi-X Europe’s CXE order book, which garnered an 18.3% share.

Competition diminishing 

The sale of Burgundy marks the further consolidation of alternative venues in Europe following the purchase of Chi-X Europe by BATS Global Markets last year, the acquisition of Turquoise by the London Stock Exchange in 2010 and the closure of Nasdaq OMX Europe, also in 2010.

“The Burgundy situation is another episode in the reconsolidation of European market structure driven by the need to rationalise costs,” said Christian Bower, commercial director at multilateral trading facility Quote MTF, adding the deal was a sign of how desperate the environment had become for alternative venues in Europe. “Many of the current venues are simply uneconomical and are being kept alive for positioning and political reasons. In many instances, this is performed by traditional exchanges to give the illusion of competition.”

According to Alasdair Haynes, CEO of Aquis, an MTF aiming for a Q2 2013 launch, the sale of Burgundy only reinforces the view that European equity trading is becoming a duopoly between domestic exchanges and BATS Chi-X Europe.

Alasdair Haynes“To succeed, alternative trading venues need to be pan-European and offer something different,” he said. “Volumes are too low to sustain an alternative niche geographical market in Europe right now.”

According to Thomson Reuters data, a combination of BATS Chi-X Europe and domestic markets accounted for over 85% of European equity trading in September.

Bower agreed, adding a renewed push for competition in European equity trading was vital.

“One need look no further than the central and eastern European region where brokers are suffering from the huge costs of transacting business on incumbent exchanges,” he said.

Bower said Quote MTF, which traded 0.05% of European equities last month, diversified its revenues by running trading technology platforms for third-parties and that Quote MTF expects to break even by Q1 2013.