Volatility lifts LSE’s trading volume and value

The total value traded on the London Stock Exchange (LSE)’s UK order book during September increased 24% year on year to £193.7 billion.
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The total value traded on the London Stock Exchange (LSE)’s UK order book during September increased 24% year on year to £193.7 billion. This contrasts with a decline in August when compared with the same month last year. The number of trades was also up in September, increasing 62% year-on-year to 27.1 million.

Although the LSE introduced value-based rebates at the beginning of September, the biggest reason for the increase in values was the sharp swings in share valuations caused by the wave of collapses, takeovers and losses in the financial sector.

“The LSE has introduced some rebate initiatives that will have contributed a little bit, but the strongest impact was from market volatility,” Daniel Garrod, exchanges analyst at Citi, told theTRADEnews.com. “Volatility creates a lot more trading opportunities. Also, in the current environment, there is a lot of exiting of positions and hedge fund de-leveraging, so that is creating increases in the value traded as well as the number of trades.”

LSE spokesman Patrick Humphris agreed that the biggest driver was volatility, but added, “It is too early to determine the direct impact of our new tariff structure.” He also suggested the changes seen are partly attributable to the shift towards algorithmic trading.

The LSE is coming under threat from a handful of new multilateral trading facilities (MTFs); Nasdaq OMX Europe made its debut on 26 September, joining Turquoise and Chi-X, and BATS Europe is scheduled to start trading 10 UK securities on 31 October. Humphris hoped the recent rise in value would focus attentions on the growing number of opportunities for all platforms rather than market share.

“People get very interested in the number of new MTFs, but our priority is to grow our own market and make sure that we provide as deep and as liquid and as efficient a market as possible,” Humphris said. “I hope September’s figures will remind some commentators that fixating on market share is missing the more fundamental point that what is good for the market is growth – and the amount of business on our market is increasing.”

Although the LSE is facing mounting pressure from MTFs, Citi’s Garrod believes it is weathering the storm, particularly when compared to other European exchanges. “News flow-wise, additional players impart negative momentum to the LSE, but the exchange’s value traded relative to its peers has been holding up well,” he said. “Year-to-date it has the strongest performance of value traded in cash equities versus its European peers. That suggests the additional competition has brought new liquidity to the market rather than just exporting liquidity out of the LSE’s platform.”

Nevertheless, Garrod contended that the LSE should not be complacent about the threats it faces “Initiatives like the rebate scheme were welcomed by users, but there are additional pricing pressures ahead,” he said. “The LSE is managing the pressures reasonably well, but it is definitely a challenging environment now.”

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