Commentary

Brijesh Malkan
Traders Magazine Online News

Solving the Last Mile Problem in Investment Research

One executive takes a forward look at how will the research value proposition change over the short to medium term, and what are the products and strategies managers will turn to?

Traders Poll

Do you think it's a good idea to conduct an access fee pilot to assess the pricing models used by many trading venues?

Yes
No
Should have had a pilot program a long time ago.

Free Site Registration

September 10, 2007

MiFID's Coming Print Wars

By Nina Mehta

MiFID blasts open a new competitive frontier in market data for broker-dealers, exchanges, and technology and data providers. The regulation requires-for the first time in most countries-that off-exchange trades be printed to a print facility. Previously, some countries didn't allow off-board trading.

However, the European Union has no mandatory consolidated quote or tape system, and MiFID doesn't dictate where trades should be printed. Trades can consequently be published to numerous venues, including traditional exchanges and MTFs, or directly to data vendors.

Various parties are now scrambling to capture that printing business as brokers-dealers seek out arrangements for their off-exchange prints across EU member states. The London Stock Exchange and Euronext, for example, will offer brokers pre-trade and post-trade transparency services for pan-European stocks (brokers that are "systematic internalizers"-that make markets for retail clients in Europe's most liquid shares-must meet new pre-trade transparency requirements). Deutsche Brse and OMX will provide a post-trade reporting service for pan-European stocks.

All Aboard

Last year, Project BOAT, perhaps the first aggressive business hatched for the MiFID environment, was created by a consortium of nine major broker-dealers. BOAT's aim "is to offer a competitively priced, pan-European trade-reporting venue," says Will Meldrum, managing director of Markit, BOAT's business partner. The platform, which launches in November, is also expected to provide data rebates to its customers after reselling its aggregated data to vendors and others-something exchanges that previously had a lock or near-lock on those data revenues have been reluctant to do.

Meldrum says 22 financial institutions plan to use BOAT for their pre-trade and post-trade transparency requirements. Those firms, which include the bulge-bracket investors in BOAT, have 65 percent to 70 percent of the European market share in off-exchange equities today, he estimates.

BOAT has already outlasted a wannabe rival. This past spring, DZ Bank in Germany and three French banks-Societe Generale, BNP Paribas and Credit Agricole-announced they would launch a platform to print trades. Called Yellow Submarine, the initiative was intended as an alternative to Project Boat. DZ Bank says Yellow Submarine's activities were recently "terminated."

As trade printing becomes competitive, other venues are also introducing incentives to attract business. Deutsche Brse intends to offer "revenue sharing" to customers that print off-exchange trades to the exchange. Equiduct, on the other hand, will provide post-trade reporting services for trades not executed on Equiduct, with "substantial rebates" to those customers that contribute to liquidity on the exchange's Hybrid and PartnerEx markets. Chi-X will offer rebates to customers using its market.

Aggregating Data

Under MiFID, the quote and off-board print requirements will also make the consolidation of market data a competitive sport. Data vendors will have to take in feeds from multiple print facilities and consolidate that data across markets. So far Reuters, Bloomberg and Interactive Data's ComStock have plans to do this. GL Trade, Fidessa and other vendors and technology firms are also likely to provide clients with the aggregated data they need-and will need even more once execution venues compete-for algorithmic trading and transaction cost analysis.

Equiduct, for its part, intends to add another layer of information to what some of these firms are providing. It will offer a volume-weighted best-bid-and-offer consolidated tape for both retail and, in MiFID parlance, "standard" (or institutional) market size to enable brokers and others to gauge whether a venue is offering the best execution available. "It's important for people to understand there are potentially better-execution venues than the domestic exchange," says Equiduct CEO Bob Fuller.