European exchanges eye the post-MiFID era

Project Turquoise has been one response, from a group of Europe’s largest investment banks, to Brussels’ new “markets in financial instruments directive”, better known as MiFID, which will allow non-exchanges to compete for business and kicks off in November.

Through what they promise will be an efficient, low-cost trading system enabling trading both on and off-exchange, Project Turquoise members are intent on grabbing business from existing exchanges.

So it’s hardly surprising that key exchanges – and their regulators – around Europe have been manoeuvring fast and furiously to maintain an edge in the coming single European market for financial services.

In the UK, the FSA has unveiled proposed rule changes it says will make it easier for platforms such as Plus Markets to compete with the LSE and in particular Aim, its junior market, in the post-MiFID era, reports the FT on Friday.

In a 38-page discussion document, the FSA has asked for feedback on whether market participants expect share trading to fragment among several competing platforms once the directive takes effect. It also notes that markets may become less transparent and says that current rules could hinder the competition that MiFID is intended to engender.

The document notes that post-trade reporting requirements do not apply to venues such as Aim or Plus Markets, which are not regulated exchanges, and proposes extending MiFID rules on the reporting of trades after they occur to non-regulated exchanges such as Aim and Plus Markets.

Each venue would be responsible for making the data available and the FSA would continue to collect the data overall in its end-of-day transaction reports, the document says. While the LSE is “consulting” on proposals that would allow it to designate other acceptable places where trades could be reported, the FSA’s paper notes that this, too, could inhibit competition.

Meanwhile, the SWX Swiss Exchange and virt-x, its London-based electronic trading platform, meanwhile, announced plans on Thursday for a significant upgrade to their trading technology ahead of MiFID’s implementation, and is even considering tariff reductions for customers, according to a separate report.

SWX claims the new system will offer 10 times the current capacity and 10 times its current speed, thereby lowering operating costs for users and (it hopes) competing more effectively for the growing percentage of trading conducted via electronic desk-top systems.

The systems incorporate mathematical models that send instructions to buy and sell shares based on incremental movements in price.

Basically, all competition supposedly benefits the consumer, but from the investors’ viewpoint, says FT Money, the MiFID era brings both “good and bad tidings”.

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