Exchanges

The crisis giveth as it taketh away. In recent years, investors have heard all about how Europe’s stock exchanges would suffer from the wave of competition unleashed by new anti-monopoly rules and cheaper, faster technology. And suffer they have: on any given day, alternative platforms now host about 16 per cent of European equity trades. But there are reasons to suspect that the almighty exodus from the old venues in the US – less than 40 per cent of trading in NYSE-listed securities now happens on NYSE – might not be re-enacted in Europe.

For one thing, the alternatives were not set up for duff markets such as these. The value of equities traded across Europe in the first four months was down 60 per cent year on year, according to Citi. While incumbents have other income streams – such as listings fees, rights issues, derivatives – the challengers do not. Exact figures are unclear but a tit-for-tat price war may have driven the average revenue per trade, after rebates, to about 10 cents.

Merely to break even, an alternative platform with a cost base of about €10m would need to do 100m trades a year. Quite a task, given that the 208-year-old London Stock Exchange, which reports full-year figures today, said in March it was on course for about 190m in its UK order book. Owners’ patience is not unlimited. Equiduct, part of 323-year-old Börse Berlin, is already shifting its focus to selling market data, only weeks after launch.

Heightened volatility, meanwhile, has reinforced the appeal of the familiar. Chi-X, part-owned by Nomura, made much of the early running after its launch two years ago. Yet only in the past month has it regained the market shares in French, Dutch and German equities it reached in August. Turquoise, the noisiest of alternative venues in the aftermath of the European Union’s markets in financial instruments directive, has yet to make up the volumes it lost in March, when its market-making agreements with its nine backers expired. Xavier Rolet, the LSE’s new chief executive, should be praying for rain.

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