Alternative Trading Systems in European Equities

by David Easthope, June 18, 2007


Paris, France 18 June 2007

Alternative trading systems in Europe will struggle to increase trading volumes, despite catalysts such as MiFID. The most likely scenario, in the near term, is that equity execution options will increase, but little liquidity will be siphoned away from the traditional exchanges.

The future of alternative trading systems (ATSs) in Europe is not as bright as many market participants envision, even though there are an increasing array of options for equities trading in Europe outside the traditional exchanges. The consensus that ATS trading will increase rapidly after the implementation of the Markets in Financial Instruments Directive (MiFID) is overly optimistic, according to a new report from Celent, .

The European landscape is increasingly populated with alternative trading systems (ATSs). The ATSs include a wide assortment of parties: crossing networks, limit order books, request for quote (RFQ) services, and even negociation tools. A number of dark liquidity pools have come to Europe from the US, including ITG Posit and Liquidnet. New, innovative limit order books that employ alternative trading models include Instinet's Chi-X in the UK, TradeCross's WETRA in Germany, and the announced but yet to be fully defined Project Turquoise.

"To date, ATSs have had only a marginal impact on equities trading in Europe," says David Easthope, senior analyst and coauthor of the report. "The presence of mature, electronic limit order book systems at exchanges presents a significant hurdle to ATSs wishing to penetrate the European market." While there have been numerous attempts to launch ATSs in the UK in particular, and in Germany to a lesser extent, none of these attempts have managed to attract significant order flow. By 2011, Celent predicts that ATSs in Europe will have captured only 5% market share.

"MiFID is widely touted as the catalyst to dramatically increased volumes on ATSs," says Octavio Marenzi, president and CEO of Celent and coauthor of the report. "However, while MiFID does allow ATSs to establish themselves in countries with concentration rules, the historical absence of concentration rules in the UK and Germany has not allowed ATSs to flourish." However, post-MiFID, Celent expects ATSs' proposition to be strengthened moderately in two main areas: liquidity and anonymity. But before ATSs can start to garner market share in Europe, they have a number of hurdles to overcome, including the development of an operational system, connectivity to users, clearing and settlement arrangements, and the attraction of liquidity.

The report is 41 pages and contains 13 figures and 6 tables. A table of contents is available online.

Members of Celent's Institutional Securities & Investments research services can download the report electronically by clicking on the icon to the left. Non-members should contact for more information.  

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned operating unit of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America
Michele Pace
Tel: +1 212 345 1366

Europe (London)
Chris Williams
Tel: +44 (0)782 448 3336

Asia (Tokyo)
Yumi Nagaoka
Tel.: +81 3 3500 3023

Table of Contents

Paris, France 18 June 2007

Executive Summary 3
European Equity Exchange Landscape 4
Alternative Trading Systems in Europe 7
  Background and Introduction 7
  Definitions 7
Alternative Trading Systems by Country 14
  United Kingdom 14
  Germany 16
  France 21
  Italy 21
  Spain 22
  The Netherlands 22
  Other Countries 23
Comparisons with US Market 25
Selected Pan-European ATSs 28
Future Impact of ATSs in Europe 34
  Success Factors 34
  ATS Value Proposition Post-MiFID 34
Looking Ahead 38
  Emerging ATSs 39
Conclusions 41


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