Exchanges and alternative trading venues are gradually eroding the need for traditional broker-dealers as pan-European liquidity becomes more easily accessible through the ongoing growth in low-touch trading options.
This view was shared by panellists from prominent trading platforms at The European Exchanges Summit in London.
“Broker-dealers and exchanges are starting to meet in the middle, as exchanges become more like service providers, technology providers and global access points of liquidity,” said John Barker, managing director of buy-side-only crossing network Liquidnet Europe.
Chi-X CEO Peter Randall noted that buy-side firms now rely on multilateral trading facilities (MTFs) as liquidity providers for pan-European stocks, having previously tapped brokers. “In the last 18 months, there has been a shift in liquidity provision away from the investment banks and towards the new sources of liquidity,” said Randall. “Now it's one connection, one trade, one settlement and one clearer. It’s much more efficient and part of the big change.”
“At the end of the day, I don’t think the buy-side really care who they go to, they just want one portal for global liquidity,” agreed Liquidnet’s Barker.
In the last 12 months, exchanges and multilateral trading facilities have introduced new initiatives allowing buy-side firms to connect directly to exchanges with minimal input from their brokers. Chi-X recently introduced sponsored access to enable buy-side firms to trade at speed on its platform directly, albeit in the name of the broker. Similarly, most exchanges and MTFs offer co-location, which allows customers to physically place their servers next to matching engines, removing any latency associated with external networks.
“The buy-side has become a lot more important to exchanges,” said Rainer Riess, managing director of cash market development, Deutsche Börse. “For example, sell-side firms now offer co-location sites to their clients, something that wasn’t even an issue a few years ago.”
“Although the sell-side are still our biggest clients, the shift in the trading environment is encouraging us to introduce things like sponsored access so the buy-side can connect directly to our engine,” added Cees Vermaas, executive director sales and relationship management for European cash markets, NYSE Euronext.
However, all panellists agreed that any change is still in its early stages and sell-side knowledge is still at a premium.
“The buy-side doesn’t yet have the technology or trading expertise. It’s a gradual shift and I don’t think exchanges are ready to take on the sell-side’s intermediary role just yet,” said David Shrimpton, head of equity markets development at the London Stock Exchange. “The crisis of the last six weeks has accelerated this shift in people’s minds but more sell side expertise is needed from the buy-side.”