|[December 05, 2013]
Final MiFID Regulations Creating New Challenges and Opportunities for European Exchanges; TABB Says 65% of Traders See 2014 Business Model Turning More Multi-Asset
LONDON & NEW YORK --(Business Wire)--
With the sale of Euronext scheduled for mid-2014, European exchanges are
priming themselves for radical change. Although the full outcome of
MiFID II regulation has yet to play out, TABB Group in new
research says a chain of events that will transform the incumbent
exchanges is already in motion.
With declining equity turnover set to continue, says Rebecca Healey, a
Group Europe senior research analyst and author of "All
Change at the Exchange: The European Exchange Landscape Post-ICE/NYSE
Euronext," unless radical changes are made to the business model,
growth at exchanges will come from either increasing market share or
diversifying out of cash equities.
As fixed income, derivatives, FX and other OTC markets become automated,
exchanges will not only be expected to offer more multi-asset,
multi-region and multi-currency services, but also to offer them at the
same level of automation and service currently offered for cash
equities. According to Healey, "we believe the evolving European
regulation in a challenging economic climate may be the catalyst
required to overcome existing inertia and drive through necessary
innovation in both product and pricing."
With MiFID covering all instruments, the push to greater transparency
across all asset classes will provide significant opportunities for
trading activity on exchanges across different asset classes. Increased
regulation will suit exchanges because the requirement to monitor
trading olumes will lead to greater data requirements and data sales,
Healey explains. But Healey warns that diversification alone is
insufficient. "Widespread customer dissatisfaction of the status quo
plus the increasing demands for greater transparency from regulators and
fairness of participant business practices are creating clamour for
Newcomers have emerged, challenging the incumbents, countering the claim
that European exchanges are heading for relegation. Healey says BATS
Chi-x's growing market share has been well documented but others are
competing, including Turquoise where value traded has increased at a
time when most other national exchange volumes are declining. From data
charges to order types, recent initiatives at Aquis, BATS Chi-X and
Turquoise offer the ability to trade pan-European securities via a
In addition to exchanges diversifying revenue sources, trading practices
are evolving, becoming increasingly global and multi-asset on the buy
side, with banks and brokers following suit. "This represents a
significant opportunity for data and technology vendors," she says,
adding that new trading models have already captured institutional
investors' attention. "With 98% of the buy side opting to interact with
dark order flow, the ability to rest passive orders with no participant
initiating the match is delivering improved performance in larger sizes
with no risk of adverse selection."
As the cost of trading shifts to the cost of investment, TABB sees
clearing factoring into execution decisions. Additionally, as clearing
moves into the world of collateral management, the ability to optimise
portfolios across different asset classes and geographies will open up
"From investment to execution to settlement," says Healy," who stood for
what and why in European capital markets is fundamentally changing.
Specifically, changing fund flows, reduced commissions and a persistent
shift from vanilla equity products to alternative asset classes will
require exchanges to continue to redefine their roles to survive. As we
move into 2014, it's all change at the exchange."
The 25-page report with 15 exhibits and the Executive
Summary can be downloaded by TABB Research
Alliance Equity clients and pre-qualified media at
For more information or to purchase the report, write to firstname.lastname@example.org.
About TABB Group
Based in New York and London, TABB
is the only research and consulting firm focused exclusively on capital
markets, based on the interview-based, "first-person knowledge" research
methodology developed by Larry Tabb. For more information, visit www.tabbgroup.com.
In 2010, TABB launched TabbFORUM,
the online capital markets community for peer-to-peer opinion and
analysis covering current industry issues, tracked daily by 18,000-plus
professionals; in October, 2013, QuantFORUM, a new online channel for
the quantitative investing community went live.
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