Some exchange operators petitioning regulators for their own “narrow interests”, instead of working towards a safe market structure, a senior venue executive has charged, speaking at TradeTech 2013 in London yesterday.
Natan Tiefenbrun, CEO of multilateral trading facility (MTF) Turquoise, said he was concerned some exchanges were pursuing opposite market structure rules in different jurisdictions, specifically the United States and Europe.
“We recognise that as per the G-20 decisions, there is going to be more regulation of the market, however my concern is that the process has been hijacked for a narrow commercial benefit for some participants, rather than to ensure the safety or the efficiency of the system as a whole,” said Tiefenbrun, whose MTF is majority owned by the London Stock Exchange.
He was speaking at a panel on the value and future landscape of trading venues, alongside representatives of BATS Chi-X Europe, Deutsche Bank, Knight Capital, Sparinvest and Deutsche Borse.
Tiefenbrun said it was discouraging to see that exchanges such as Nasdaq OMX and NYSE Euronext were arguing for new changes in the US that would promote choice and ensure that lit and dark trading live side by side. “Whereas in Europe, unfortunately NYSE, I think seeing the opportunity of the profit, is pursing changes to the rules that will largely eliminate dark trading, essentially eliminating choice.”
Some exchanges have backed the European Parliament’s stance on eliminating equity-based broker crossing networks from the organised trading facility (OTF) category in the second iteration of the European Union’s Markets in Financial Instruments Directive (MiFID). The move would force BCNs to become systematic internalisers or MTFs, effectively reducing competition in the dark pool market.
Meanwhile, in the US, Nasdaq OMX is joining NYSE and BATS in offering retail flow as part of its Retail Price Improvement (RPI) plan. The move sets the exchange groups up as competitors to brokers that currently cross retail flow internally.
“Very poor situation”
Mark Hemsley, CEO of BATS Chi-X Europe, said the situation in the US and Europe was completely different when it came to dark pools.
Whereas in the US, the concern was price improvement, Europe has got itself in a “very poor situation,” he said.
With MiFID, regulation was introduced to scare dark pools into becoming lit, but it instead led to further demand.
“Now what we are doing is saying ‘oh, we don’t like those’. Let’s try and change regulation again and try to scare them elsewhere,” Hemsley said.
Hemsley said he believed lit and dark pools should operate in integrated books.
However, Michael Krogmann, executive vice-president for Xetra Market Development at Deutsche Borse, said there was a need for transparent price discovery.
“Fragmentation per se is not a bad thing, but you need transparency to overcome the bad things.”
He acknowledged that some order sizes would never be able to trade in the open audit book, but “it makes more sense for the sake of equity markets to concentrate liquidity in public audit books”.