MTFs aim to lower Spanish trading costs

Chi-X, Turquoise and Nasdaq OMX Europe, three pan-European multilateral trading facilities (MTFs), are launching trading services in Spanish stocks which are expected to considerably reduce trading costs.
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Chi-X, Turquoise and Nasdaq OMX Europe, three pan-European multilateral trading facilities (MTFs), are launching trading services in Spanish stocks which are expected to considerably reduce trading costs.

From today, Chi-X will start trading all constituents of the IBEX 35, Spain’s blue-chip index, while Turquoise plans to add 100 Spanish stocks in a ‘halted state’ on its production platform on Friday, in preparation for a soft launch on 16 February, followed by a full launch a week later. EuroCCP, Turquoise’s central counterparty, has also announced plans to clear Spanish equities to coincide with Turquoise’s rollout.

Chi-X began trading one Spanish stock, Telefonica, to its platform on 15 December, and added five more, BBVA, Santander, Iberdrola, Repsol and Union Fenosa, yesterday, ahead of today’s full rollout today. Nasdaq OMX Europe will begin trading in these six stocks from Monday. Both Chi-X and Nasdaq OMX Europe will continue to use Fortis’ European Multilateral Clearing Facility to clear its Spanish trades.

Compared with other European markets, MTFs have been slow entering Spain. Before Iberclear, the Spanish central securities depository, can settle any trade, an identification number has to be generated by the Madrid Stock Exchange. Therefore, MTFs have to connect to domestic brokers with Spanish exchange membership (Interdin, in the case of Turquoise and BNP Paribas Securities Services Madrid for Chi-X), who will then cross the trades with themselves to generate the required number.

“The Spanish market offers a complex trading, clearing and settlement tariff dependent on whether you are proprietary or agency trading, how many registration splits you may have and your trading turnover,” said Peter Randall, CEO of Chi-X Europe. “We hope that introducing our trading tariff, offering clearing with EMCF and settlement with BNP Paribas, we can offer a straightforward competitive approach.”

To allow for this process, the trading of Spanish stocks on Chi-X will close an hour earlier than for other stocks at 15.30 GMT to allow for downstream processing. These factors will make trading Spanish stocks on MTFs more expensive than other European markets, although Chi-X claims that, “The overall costs of trading, clearing and settling IBEX 35 stocks on Chi-X are anticipated to be lower than via the incumbent market infrastructure.”

“Spain is currently one of the more expensive markets in Europe but the MTFs seem to have a good deal with the local brokers and have kept the costs low,” agreed Toby Bayliss, head of algorithmic and program trading, Europe at agency brokerage Sanford Bernstein. “The niche that the alternative venues have – lower costs than the incumbent exchanges, a wider variety of order types and ability to trade at the mid-price – are incentives for us to trade there, but this depends on the MTFs building up a sufficient base of liquidity.”

However, Mark Winter, head of dealing at Insight Investment, considers liquidity discovery as the key aspect when trading in Spain. “We prefer to trade in Spain through domestic brokers as it is a more effective way of sourcing liquidity in these stocks, which is our number one priority,” he told “We need MTF access so we have all our bases covered, but we still find it more useful to connect to someone with the knowledge of where the flow is. Some of the institutions in Madrid are vital to liquidity in certain stocks and it is imperative that you are with a counterpart that knows these institutions.”

Spain is one of a number of European countries that have not yet fully adopted MiFID regulations. Many observers believe that a regulatory overhaul is required in Spain before European trading can be regarded as truly harmonised, particularly as Spanish stocks account for over 14% of Eurostoxx 50 weightings. “The back-end process of trading in Spain is a little prohibitive of front-end competition at the moment,” said Bayliss.

“The Spanish market offers some of the most liquid equities in the Eurostoxx 50 and in this climate of wanting to drive down brokerage costs, we believe our participants will welcome the opportunity to access the Spanish equities more cheaply,” added Randall.