Exchange group SIX Swiss Exchange has seen a steady decrease in its market share of Swiss blue chip stocks since migrating trading to Zurich from its London-based SWX Europe platform. The exchange has lost out to multilateral trading facilities located in the UK capital, prompting suggestions that distance has weakened SIX’s competitive position.
According to figures from multilateral trading facility BATS Europe, the share of trading in SMI stocks executed on SIX Swiss Exchange’s rebranded ‘Swiss Blue Chip Segment’ has dropped by more than ten percentage points since the move – from 91.00% on 30 April, the last day of SWX Europe’s trading in London, to 80.32% last Friday, 31 July. The main beneficiaries of this fall in market share are London-based multilateral trading facilities Chi-X and Turquoise, which accounted for 10.21% and 7.97% of SMI trading respectively on 31 July.
In November 2008, when the repatriation of Swiss blue chip trading was first announced, the exchange said closure of SWX Europe would grant traders simpler access to Swiss stocks and its reduce costs. Market participants that traded on the EU-regulated portion of SWX Europe previously had to take into account Swiss, UK and EU regulations. “We will save at least SFr15 million (€9.8 million) a year, which is not negligible given the pressure on margins our industry is going through,” a spokesperson asserted at the time.
SWX now has no significant presence in London, making it harder to liaise with a significant portion of its potential client base, many of which are based in the city, in part at least, to locate their trading engines close to those of the growing number of trading venues located there.
A spokesperson for SIX Swiss Exchange denied that the move had been a factor in its reduced market share. “SIX Swiss Exchange is still dominating Swiss stocks by far, even if it has lost a little bit of its market share in blue chips,” the spokesperson said. “Any decrease in market share is a result of the enormous number of new entrants into the market over the past year, especially in the form of MTFs, and not related to the recent repatriation, which was only completed in May.”
A number of brokers disagree. “Their communications and visibility with the London market have definitely suffered since they moved back to Zurich,” said one.
Although SIX has chosen to pull out, London appears to be exerting a gravitational pull on other trading venues. NYSE Arca Europe, the MTF operated by exchange group NYSE Euronext, is currently located in Paris but the exchange group is due to migrate its primary European data centre, which hosts its matching engine, to London in 2010.
Several market participants have suggested that, despite making some concessions to the post-MiFID European trading environment, SIX Swiss Exchange has not moved far or fast enough to compete effectively for new liquidity.
“One positive is that it did not impose the rules already in place for Swiss mid- and small-cap stocks, but this left the blue-chip market open at a time when liquidity is a lot more mobile,” said one. “The fact that SIX Swiss Exchange still operates per-execution charges shows it hasn’t responded to market structure changes such diminishing order sizes and as such will find it hard to attract high-frequency and stat-arb traders. Capacity also compares badly with MTFs.”
The implication is that the newly retrenched SIX Swiss Exchange is too focused on meeting the needs of its core domestic clients at the expense of competing in the wider European market.
“Local retail-dominated brokers still trade on the primary, so issues of capacity and latency are not much of an issue for them. But overall SIX Swiss Exchange hasn’t responded quickly to new market dynamics thus far,” the broker added. “They need to recognise that the needs of MTF traders are not necessarily the same as participants that trade on regulated markets.”