By Solarina Ho
TORONTO, Feb 10 (Reuters) - More consolidation lies ahead for the world's major exchanges, while smaller markets could team up with innovative, alternative trading systems, the head of Liquidnet Canada said on Thursday.
'We're seeing consolidation, where geography doesn't matter,' said Robert Young, president of Liquidnet Canada, an electronic stock-trading market known as an ATS.
'You'll see the bigger guys say, let's consolidate. Smaller guys could sell themselves into one of these large groups, but I think they're more likely to team with someone innovative and that'll be a big part of the restructuring.'
Young made his remarks in an interview with Reuters a day after the London Stock Exchange's announced plans to combine with TMX Group, which operates the Toronto Stock Exchange. Also on Wednesday, Deutsche Boerse and NYSE Euronext said they planned to form the world's biggest stock and futures exchange.
The consolidation comes at a time when long-established exchanges such at the TSX and NYSE are facing a wave of upstart competitors.
The ATSs, which use sophisticated software programs that allow computers to make trading decisions in fractions of a second, are fragmenting the market and eating into the profits of the world's biggest exchanges.
The TSX has seen its market share in Canada erode to about two-thirds at the end of 2010. Intense competition has come from the likes of Alpha ATS, an alternative trading system backed by Canada's biggest banks. Founded in 2007, Alpha ATS had captured nearly 20 percent of the Canadian market by last year.
Young observed that the industry was going through both fragmentation and consolidation at the same time. 'The real thing that's going on is restructuring of the industry,' he said.
BOLD PREDICTIONS
U.S.-based Liquidnet, which operates in 39 markets around the world, predicted that TMX would buy the LSE this year. It also forecast a big year for 'dark pools' in Canada, with big share gains ahead for ATSs.
Already, a number of players, including Instinet, Credit Suisse, Goldman Sachs and Morgan Stanley are considering launching Canadian dark pools -- which allow buyers and sellers to match trades anonymously, concealing price and volume.
'The reason 'dark' is so hot right now is we've gotten clarity,' said Young, referring to a position paper published in November by the Canadian Securities Administrators (CSA) and the Investment Industry Regulatory Organization of Canada. Regulatory recommendations have yet to be finalized.
MORE FEES?
Even as the popularity of ATS models rise in Canada, there is a new regulatory proposal on the horizon that could alter the landscape again, with possible global ramifications.
IIROC proposed a fee model that would include charging marketplaces a fee for each order -- the buy or sell instructions on an exchange. It currently collects fees from buyers and sellers based on the number of shares traded.
Under the new proposal, a fee would also be imposed on all 'messages' or 'quotes' -- including placed or canceled orders.
The speed at which ATS models work means a single stock could have tens of thousands of 'quotes' in one second, but no trades. The increased volume of activity means the effort required to perform market regulation is affected, IIROC says.
Young, who is on the committee advising the proposal, says the current system is unfair. Some trading models take up a greater ratio of trading activity but are paying the same costs as a traditional model producing less activity, he said.
There have been speculation over whether the proposal, if approved, could set a precedence beyond the Canadian border.
It is still under review, with no firm dates for a final decision, though Young expects it by late this year or early 2012.
'I appreciate and understand when you change the fee model there will be winners and losers. ... The fee model, it will change and they will adapt, I'm absolutely confident of that,' said Young. 'It's a very resilient industry. I think it's important that things be fair.'
(Editing by Frank McGurty) Keywords: LIQUIDNET/ (solarina.ho@thomsonreuters.com;+1 416 941 8067; Reuters Messaging: solarina.ho.thomsonreuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2011. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
TORONTO, Feb 10 (Reuters) - More consolidation lies ahead for the world's major exchanges, while smaller markets could team up with innovative, alternative trading systems, the head of Liquidnet Canada said on Thursday.
'We're seeing consolidation, where geography doesn't matter,' said Robert Young, president of Liquidnet Canada, an electronic stock-trading market known as an ATS.
'You'll see the bigger guys say, let's consolidate. Smaller guys could sell themselves into one of these large groups, but I think they're more likely to team with someone innovative and that'll be a big part of the restructuring.'
Young made his remarks in an interview with Reuters a day after the London Stock Exchange's announced plans to combine with TMX Group, which operates the Toronto Stock Exchange. Also on Wednesday, Deutsche Boerse and NYSE Euronext said they planned to form the world's biggest stock and futures exchange.
The consolidation comes at a time when long-established exchanges such at the TSX and NYSE are facing a wave of upstart competitors.
The ATSs, which use sophisticated software programs that allow computers to make trading decisions in fractions of a second, are fragmenting the market and eating into the profits of the world's biggest exchanges.
The TSX has seen its market share in Canada erode to about two-thirds at the end of 2010. Intense competition has come from the likes of Alpha ATS, an alternative trading system backed by Canada's biggest banks. Founded in 2007, Alpha ATS had captured nearly 20 percent of the Canadian market by last year.
Young observed that the industry was going through both fragmentation and consolidation at the same time. 'The real thing that's going on is restructuring of the industry,' he said.
BOLD PREDICTIONS
U.S.-based Liquidnet, which operates in 39 markets around the world, predicted that TMX would buy the LSE this year. It also forecast a big year for 'dark pools' in Canada, with big share gains ahead for ATSs.
Already, a number of players, including Instinet, Credit Suisse, Goldman Sachs and Morgan Stanley are considering launching Canadian dark pools -- which allow buyers and sellers to match trades anonymously, concealing price and volume.
'The reason 'dark' is so hot right now is we've gotten clarity,' said Young, referring to a position paper published in November by the Canadian Securities Administrators (CSA) and the Investment Industry Regulatory Organization of Canada. Regulatory recommendations have yet to be finalized.
MORE FEES?
Even as the popularity of ATS models rise in Canada, there is a new regulatory proposal on the horizon that could alter the landscape again, with possible global ramifications.
IIROC proposed a fee model that would include charging marketplaces a fee for each order -- the buy or sell instructions on an exchange. It currently collects fees from buyers and sellers based on the number of shares traded.
Under the new proposal, a fee would also be imposed on all 'messages' or 'quotes' -- including placed or canceled orders.
The speed at which ATS models work means a single stock could have tens of thousands of 'quotes' in one second, but no trades. The increased volume of activity means the effort required to perform market regulation is affected, IIROC says.
Young, who is on the committee advising the proposal, says the current system is unfair. Some trading models take up a greater ratio of trading activity but are paying the same costs as a traditional model producing less activity, he said.
There have been speculation over whether the proposal, if approved, could set a precedence beyond the Canadian border.
It is still under review, with no firm dates for a final decision, though Young expects it by late this year or early 2012.
'I appreciate and understand when you change the fee model there will be winners and losers. ... The fee model, it will change and they will adapt, I'm absolutely confident of that,' said Young. 'It's a very resilient industry. I think it's important that things be fair.'
(Editing by Frank McGurty) Keywords: LIQUIDNET/ (solarina.ho@thomsonreuters.com;+1 416 941 8067; Reuters Messaging: solarina.ho.thomsonreuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2011. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.