Europe’s new pan-European trading venues are expected to grab 21% of market share over the next three years, according to the latest study from research firm Tabb Group.
‘European Equity Market Structure: Liquidity, Trust and Competition’, examines the changes European market participants can anticipate, as 20 multilateral trading facilities – including dark and lit trading venues – are expected to offer Europe-wide trading before the end of the year.
In response to the threat of losing market share, the report notes that incumbent exchanges have spent €229 million in 2008 alone, in their attempts to deal with the imminent competition. For example, in the last two months, the London Stock Exchange has upgraded its TradElect platform to handle 10,000 messages per second and halved latency to three milliseconds, to make it comparable with MTFs.
“With the arrival of competition, the marketplace has already started to fragment and this is about to accelerate,” said senior Tabb consultant, Miranda Mizen, in a statement. “There is no question that exchanges will lose their market share to the MTFs, requiring them to fight hard and retain their commanding position, as their cost structures struggle with cumbersome legacy environments, lost revenue and pricing wars.”
The report also suggests that as MTFs introduce new pricing models, matching functions and technologies, they will attract new types of market participants resulting in an overall increase of trading volume by 17% in 2009.
However, the future is not all rosy for pan-European MTFs. Tabb managing director and co-author of the report, Andrew Howieson notes that consolidation in the next three to four years is inevitable as competing MTF offerings overlap.
“Competition will be fierce and eventually lead to over-crowding by MTFs, triggering mergers and acquisitions, not to mention a few flops,” he said. “Exchange consolidation in the shorter term is more likely as the impact on their long-term profitability becomes evident more quickly and they seek to proactively protect their future.”