Spanish MTF switches tech partners, loses market makers

Plataforma Alternativa de Valores Españoles, a multilateral trading facility for Spanish stocks, will source its technology platform from Swedish vendor Cinnober, after the termination of a prior deal with Equiduct, a market operator majority owned by electronic market maker Citadel Securities.
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Plataforma Alternativa de Valores Españoles (PAVE), a multilateral trading facility (MTF) for Spanish stocks that plans to launch in Q1 2012, will source its technology platform from Swedish vendor Cinnober, after the termination of a prior deal with Equiduct, a market operator majority owned by electronic market maker Citadel Securities.

The agreement announced in September 2010 by PAVE and Equiduct, which operates a retail-focused pan-European regulated market, fell through due to concerns over a lack of commitment to the MTF by leading Spanish institutions, according to sources close to the situation.

PAVE's new Cinnober solution will be based on its TRADExpress Streamlined Services, a multi-asset execution system that provides surveillance and trading technology on a subscription basis. Earlier this week, Cinnober unveiled TRADExress Ultra, a new trading system which the firm claims is the first to offer speeds of below 10 microseconds. The system is designed to complement the TRADExpress system.

The deal with Equiduct covered the supply of a matching engine and market data and connectivity platforms, as well as market making agreements with Citadel and US-based broker Knight Capital, also a shareholder in Equiduct. The collapse of the deal with PAVE leaves Equiduct free pursue its own entry into the Spanish market.

Javier Tordable, CEO at PAVE, confirmed to that “negotiations with Equiduct did not lead to a concrete result”, but added that the MTF has now attracted investment from at least four Spanish financial institutions. PAVE is continuing to seek investment from potential international shareholders.

To date Europe boasts just one significant regional MTF, Nordic-only trading venue Burgundy, which launched in June 2009. According to Thomson Reuters, Burgundy traded 0.35% of total European liquidity last month, including a 4.74% share of Swedish blue-chip liquidity.

Settling down

In addition to PAVE, competitive pressures are expected to mount for domestic Spanish exchange Bolsas y Mercados Españoles (BME) following changes to Spain's clearing and settlement regime at the start of this year.

Pan-European clearing counterparties (CCPs) EMCF and EuroCCP made the necessary adjustments to their Spanish settlement fees and procedures at the start of May, but so far there has been no significant uptick in volumes on MTFs because of apparent teething troubles suffered by some CCPs. PAVE has contracted EuroCCP to supply its post-trade services.

“Some pan-European CCPs have experienced some technical difficulties in implementing the new settlement arrangements, which have contributed to the lack of activity in Spanish stocks on MTFs since the Title V reforms came into force,” said a source close to the situation.

In May, London Stock Exchange-owned MTF Turquoise, which uses EuroCCP, had a 0.60% market share of Spain's blue-chip index, the IBEX 35, compared to 0.42% in April.

According to its own figures, Chi-X Europe traded 1.3% of IBEX 35 stocks in May compared to 1.4% in April. BATS Europe, whose parent company BATS Global Markets is currently seeking regulatory approval to buy Chi-X Europe, had 0.86% market share last month compared to 0.76% in April, according to figures from Thomson Reuters. The BME traded €45.3 billion last month, representing a 5.24% share of total pan-European trading.

“Trading in Spain is becoming easier for alternative venues, but there is still some work to be done. There is also much progress to be made in terms of working with our participants to implement the changes internally and becoming more active in Spain,” said a spokesperson for Chi-X Europe.

Previously, alternative venues operating in Spain were required to obtain an identification number sent to the BME-owned central securities depository Iberclear that could only be generated by the domestic exchange. The Title V reforms allow foreign CCPs to receive the required identification number directly from Iberclear.