It is now two months since Nasdaq OMX Europe, a pan-European trading venue, opened for business on 26 September, but intense competition and extraordinary market conditions have given the US exchange-backed multilateral trading facility (MTF) a rocky ride thus far.
Figures from technology firm Fidessa’s Fragmentation Index – a daily analysis of European liquidity – reported 1,391 trades conducted on Nasdaq OMX Europe on 26 November. Rival MTF Turquoise, launched in August by nine leading investment banks, completed 133,979 trades. BATS Europe, another US exchange-backed MTF, executed 34,236 trades on the same day. All three MTFs launched this year are playing catch-up with Chi-X, the acknowledged market leader, which has captured around 6% of total equity trading across Europe, and has regularly grabbed a 15-20% share of trading in LSE-listed stocks.
In October, Nasdaq OMX Europe accounted for €49,024,399 of total European equity trading, according to monthly market share figures from Thomson Reuters, compared to €26,498,636,388 executed in the same period by Turquoise. But bare comparisons can be deceptive. Although Nasdaq OMX Europe and Turquoise have ramped up their coverage of European stocks week by week since their respective launches on 26 September and 15 August, the latter went into October with distinct advantages. First, Turquoise had already completed the rollout of 1,267 stocks in 14 countries by 29 August. Second, Turquoise’s market-making agreements with shareholder banks kicked in around the middle of September, thereby guaranteeing a flow of liquidity just as the markets were plunged into disarray by the collapse of US investment bank Lehman Brothers. By contrast, Nasdaq OMX Europe entered October offering trading in just 25 UK stocks, ending it with 647 stocks across 13 markets. The platform extended its coverage to include Irish stocks in November. BATS launched on 31 October and continues its rollout today with Swiss and Italian stocks. The platform will add Nordic stocks next week.
As well as the speed of its INET matching engine, one of Nasdaq OMX Europe’s key differentiators has been an onward routing service, which allows clients to route orders to primary markets and other MTFs via its order book. It is the only MTF to have such a service, but other venues are expected to follow. Its routing fee structure – 0.25 bps to Chi-X, Turquoise and the London Stock Exchange (LSE) for UK equities – means trading on the LSE is currently cheaper via Nasdaq OMX Europe’s order book.
The LSE subsequently introduced of a 1.0 bps routing charge for any MTFs that route orders to its market, but Nasdaq OMX Europe has so far absorbed the charge. In addition to the 0.25 bps onward routing fee, Nasdaq has introduced a price promotion, which effectively eliminated execution costs for members that employ a 50:50 passive/aggressive trading strategy. The promotion was initially up for review at the end of the year, but has since been extended to the end of March 2009.