Pan-European multilateral trading facility (MTF) BATS Chi-X Europe will adjust its trading fees from next year in a bid to differentiate the liquidity available on the two lit order books it operates.
While the new pricing will increase revenues, it could also widen the range of market participants and strategies that operate on the MTF.
From 1 January, BXE, the former BATS Europe order book, will abolish the rebate for adding liquidity – 0.18 basis points previously – and reduce the charge for removing liquidity to 0.15 bps, from 0.28 bps.
On CXE, the new name for the Chi-X Europe platform, the rebate for passive orders will be reduced from 0.2 bps to 0.15 bps, while the 0.3 bps charge for aggressive orders will remain the same.
The new fee structure will increase BATS Chi-X Europe’s net commission on a trade to 0.15 bps, 50% higher than the 0.1 bps received previously.
By comparison, Turquoise – BATS Chi-X Europe’s closest MTF rival – adjusted its pricing on 1 September, levying a 0.3 bps fee for aggressive orders and offering a tiered rebate system ranging from 0.14 bps and 0.28 bps depending on monthly value traded.
Brokers anticipate the price changes on BATS Chi-X Europe to have an immediate impact on the liquidity profiles of the BXE and CXE order books.
“We expect the price changes to attract different types of participants on each book, given that there are strategies that succeed based on the pricing of a trading venue,” said Mark Goodman, head of quantitative electronic trading services at Société Générale. “We will look at how the liquidity profile for each venue changes and adjust the logic of our smart order router to ensure we achieve best execution for our clients.”
High-frequency trading (HFT) strategies that hunt for rebates, for example, may opt to trade only on CXE. The elimination of the rebate on BXE could discourage HFT activity, potentially reducing the liquidity they provide but also making the order book more attractive for institutional investors seeking to avoid this type of activity.
BATS Chi-X Europe CEO Mark Hemsley said the use of the venues’ interbook sweep orders – which offer the MTF’s members the ability to send aggressive orders to either CXE or BXE and then rest the residual part of their order on the BATS Chi-X Europe book of their choice – will ensure members have optimal access to liquidity following the price changes.
“Customers have an opportunity to realise cost savings when using our new interbook sweep orders, which allow them to maintain only one connection and gain simple, efficient access to both of our lit books or both dark books,” he said.
The overall increase of trading charges could also cause some newer trading venues to capitalise on a perceived duopoly for trading in European stocks, suggested Steve Grob, director of group strategy and trading technology vendor Fidessa.
“You could see a redoubling of efforts by newer MTFs to use the increase as a way of demonstrating to the market that Europe needs more than two main venues for trading activity, but whether this will actually work and increase the market share of other venues remains to be seen,” said Grob.
The combination of BATS Chi-X Europe and the domestic exchange accounts for over 80% of trading in many European markets. One new venture hoping to capitalise on this dominance is Aquis Exchange, a new trading venue conceived by former Chi-X Europe CEO Alasdair Haynes that is currently seeking approval from the UK’s Financial Services Authority.
According to Haynes, Aquis will offer a new pricing structure that slashes in half the current fees charged for execution.
Last month, CXE had a 18.6% share of European equity trading, with BXE garnering a 4.9% share. The next largest MTF, Turquoise, grabbed a 4.6% market share in October, according to Thomson Reuters data.