Turquoise, the share trading platform, aims to capture 5-10 per cent of pan-European share trading by the end of this year as it seeks to offset a dramatic loss of business after the expiry of market making commitments from founding shareholders.
The company is one of a handful of new platforms to have emerged in the wake of Mifid, the Brussels directive that broke the monopolies of the region’s incumbent exchanges and allowed competition in share trading.
However Turquoise’s market share halved overnight last month after market-making commitments from the nine banks that backed its launch seven months ago expired and were not renewed.
Eli Lederman, chief executive, told the Financial Times in a video interview: “You had nine of the largest trading firms in the world who had a very unusual trading relationship around Turquoise as part of the launch strategy. When that stopped there was bound to be an effect.”
He said Turquoise was rebuilding “rapidly”, adding: “I’m sure we will be [at] between 5 and 10 per cent pan-European [share by the end of the year].”
Mr Lederman said Turquoise had been rebuilding share partly by attracting so-called “electronic liquidity providers” – a new breed of market-making companies that are making up a greater proportion of trading in equity markets generally.
Mr Lederman said such companies were already providing a third of so-called “passive orders” on Turquoise. Previously, most such activity on Turquoise came from its founding banks. “It’s something we are focused on and it’s a significant part of our trading now.”
A passive order is an order placed by a trader in anticipation of that order being matched by someone else. Platforms typically pay such traders rebates as incentives to make markets in this way, with the rebate payable when the order is matched. Traders who match such orders typically pay a fee to the platform for doing so.
Platforms such as Turquoise have, collectively, about 20 per cent of share trading in Europe, with the rest held by traditional exchanges.
Asked why the platforms did not have a larger market share at this point, Mr Lederman said: “I think the largest single reason is the environment we are operating in. It’s difficult to prioritise in terms of technology budgets and all of the things that people have to do to really move liquidity from the venue where it’s always been to trading on these new platforms.”
Mr Lederman said trading activity could yet swing back to the exchanges. He said it was “very important that the [trading] community connect to these new platforms and increase the usage of them really dramatically so they can become viable commercially and begin to make money. That will be real competition when we get to that point.”
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