The London Stock Exchange (LSE) is planning to charge a fee for orders routed to it from multilateral trading facilities (MTFs) in a bid to separate order flow from clients and rivals.
Although the new pricing has yet to be finalised and applied, and the LSE has not yet released any details, theTRADEnews.com understands brokers could be charged 1.5 basis points for routing orders from MTFs to the LSE. MTF routed orders would also not qualify for the value-based discounts that apply to brokers’ orders from other sources. Under a tariff system imposed in September, the LSE charges brokers a maximum of 0.75 bps for taking liquidity, but this can fall to as low as 0.45 bps points for brokers executing more than £30 billion a month on the exchange.
The change would most directly affect Nasdaq OMX Europe, so far the only MTF to offer an onward routing service to other trading venues, although fellow MTFs Chi-X, Turquoise and BATS have also announced their intention to introduce an onward routing service in the near future.
Citi, an LSE member, provides the routing service on Nasdaq OMX Europe’s behalf, and the MTF had been charging 0.65 basis points for routing to the LSE through Citi, but this may now have to increase sharply to reflect the new tariff – potentially making routing to the exchange prohibitively expensive.
Charlotte Crosswell, president of Nasdaq OMX Europe, told theTRADEnews.com she is “mystified” by the LSE’s actions. “On the face of it, this is anti-competitive and it potentially wouldn’t be in clients’ interests to include LSE on our router. I fail to understand why they don’t want that order flow, or would want to charge double for it, because all we are doing is adding or taking liquidity from their order book, and they are going to get their rate for that.”
She added that Nasdaq OMX Europe would review exactly how to respond to the changes once the LSE’s pricing for routing had been finalised and published.
“I would be surprised if this happens with other exchanges,” added Crosswell, “because most would welcome the order flow.”
The LSE denies the planned tariff is anti-competitive. “It is fair and right to distinguish between client business and our competitors,” LSE spokesperson John Wallace told theTRADEnews.com. “Nasdaq OMX Europe remains free to compete with us in equity trading, as others are doing.”
The LSE appears keen to ensure that competitors cannot benefit from the discounts offered to brokers for routing their clients’ orders to the LSE. “Nasdaq OMX Europe is not a member firm and it was presumptuous of it to think it could simply piggyback off a member firm’s volume discounts,” said Wallace. “From our perspective, that runs counter to the purpose of our discount scheme, which is intended to attract client flow directly on to our market, from which the market as a whole benefits.”
But Crosswell retorted, “What is the difference from a buy-side firm wanting to take advantage of a broker’s volume discount? It is all about getting lower transaction costs for the investors.”
She pointed out that a number of sell-side firms route orders to their own internal liquidity pools before sending them on to the London Stock Exchange, asking, “Is the LSE also going to discriminate against those dark pools?”