Are Europe’s stock exchanges about to become extinct? Recent fights between the New York Stock Exchange, Nasdaq and Macquarie exchanges over the future of the London Stock Exchange (LSE) are signs of a growing force for global consolidation. The result is likely to be that nations no longer need national exchanges.
That is the underlying premise of the Markets in Financial Instruments Directive (MiFID). At first sight, the directive appears to focus on over-the-counter market makers, who are now being forced to publish prices as systematic internalisers. However, on closer inspection, MiFID is forcing these internalisers and multi-lateral trading facilities (MTF’s), including the alternative exchanges, to become transparent and, in so doing, to compete directly with existing exchanges and market data providers.
If all the prices for all the players across all the markets can be seen online and in real time, where and what will be the primary trading venues? The exchanges are today’s venues but tomorrow that will change.
For example, another critical factor in MiFID is the definition of liquid shares for all the European member states. These liquid shares (about 540 of them) will become the primary European shares. The problem then is who needs a FTSE100 or 250? If the European Parliament has ratified a directive that states there are these critically liquid shares, who needs other indices?
These two underlying themes of MiFID lay out a stark change as they begin to question the status quo. LSE will need to become a European stock exchange, as will the Deutsche Börse, Euronext and the others. But they cannot all become European exchanges and compete on an equal status.
Meanwhile, the market makers, internalisers and MTFs will not automatically publish prices to Reuters and Bloomberg or deal on the exchanges. The market makers could just as easily set up their own market data feeds and their own pan-European exchange. That is another potential scenario for the post-MiFID world.
Whichever future plays out, the data publishing requirements of MiFID will enforce transparency across the European markets and will call into question the role of national exchanges and market data providers. Charlie McCreevy, EU Commissioner for the Internal Markets, stated in a recent interview: “Trading in shares will no longer be the sole prerogative of the local stock exchanges… this will put significant pressure on existing exchange platforms to raise their game, to reduce costs, and to offer services that investors want.”
Chris Skinner is an independent financial commentator.
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