Europe’s new multilateral trading facilities (MTFs) have started taking market share from one another, as their ranks have swelled and the amount of order flow they have been able to capture from incumbent exchanges has stagnated, according to research from investment bank Citi.
In its latest monthly European liquidity report, which examines trading activity in the Dow Jones STOXX 600 index of European shares, Citi said that November was the third month in a row that MTFs’ collective Europe-wide market share had concentrated within a narrow band of 11-15%. This followed a period of steady growth in the volumes traded off exchange between January and September.
For example, MTFs’ collective share in the UK market has only grown one percentage point to 21% between October and November, pushing the LSE’s share down one point to 79%. In Germany, MTFs’ share remained unchanged at 11% versus Deutsche Börse’s 89%.
Citi’s figures show that Chi-X suffered a slight fall back, while newer MTFs Turquoise and BATS Europe have benefited. Chi-X’s market share in Germany fell 0.7% in November to 8%, following a 1.2% fall in October to 9%. Chi-X’s UK market share also fell for the first time in November, dipping 0.6% to 16%. However, Turquoise’s November market share was up by 1% in Germany to 3%, and by 0.6% in the UK to 4%. BATS Europe, which did not start trading in Germany until 19 November, made its debut in the UK with a 1% market share.
The trend is more pronounced in Citi’s own routing activity in November. The bank cut the proportion of trades it routed to Chi-X by 4.9% in Germany to 25%, by 7.9% in France to 25%, by 4.4% in the Netherlands to 33% and by 11.3% in the UK to 40%. Yet it increased the proportion of orders routed to Turquoise in all four of these markets, and to BATS in three.
According to Tom Middleton, head of European algorithmic trading products, Citi, one reason for these shifts is the desire to spread orders to multiple MTFs, taking share away from Chi-X, the first mover in the pan-European market. He suggests that the liquidity created by electronic market-making activities on Turquoise and BATS may also have attracted more trading. "Turquoise has market-making agreements with its shareholders and BATS has some providers of good-quality liquidity," he says.
However, Middleton expects MTFs’ collective market share to grow again soon. “Smart order routing is still not an industry standard in Europe, but I fully anticipate in the new year, as more people upgrade to smart order routing technology, then the primary exchanges’ market shares will be eroded more,” he said.