Europe’s liquidity fragmentation could reverse sharply – Aite

While lit and dark multilateral trading facilities (MTFs) have successfully taken market share from Europe’s incumbent exchanges, equity trading order flow could reconsolidate in a handful of venues as quickly as it fragmented, according to the latest report from consultancy Aite Group.
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While lit and dark multilateral trading facilities (MTFs) have successfully taken market share from Europe’s incumbent exchanges, equity trading order flow could reconsolidate in a handful of venues as quickly as it fragmented, according to the latest report from consultancy Aite Group.

The report, ‘European trading venues vie for victory’, notes that Chi-X Europe gained a 12.1% total European market share from January to August 2009, while fellow MTFs BATS Europe and Turquoise garnered a combined 6.4% share in the same time.

MTFs’ collective market share of European trading, at 19.7% between January and August, is now edging closer to the London Stock Exchange’s 31.8%, is comparable with NYSE Euronext’s 23% and has overtaken Xetra’s 16.3%. However, Aite notes that consolidation is on the horizon, with both displayed MTF Turquoise and dark pool NYFIX Euro Millennium now up for sale.

Aite predicts that potential buyers of MTFs, besides existing trading venues that wish to augment their market share, are foreign firms looking to enter the UK market or UK-based firms without the in-house technology required to establish their own trading venues.

Alternative venues’ collective market share could get a boost if brokers are are forced to classify their internal crossing engines as MTFs, systematic internalisers or regulated investment exchanges. European exchanges have complained that some broker pools are not registered as any of the three MiFID venue types, giving them an unfair regulatory advantage, and the matter is likely to be examined in the European Commission’s MiFID review.

“Brokers argue that registering dark pools this way would expose them to toxic order flow while hindering their ability to provide better pricing. Yet, if they do register as MTFs, the entire European MTF landscape could change dramatically,” said Phillip Silitschanu, senior analyst with Aite Group and author of the report.

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