Last June, EC Commissioner Charlie McCreevy, in his speech "Preparing for MiFiD" to the Institute for European Affairs, said "MiFID will lead to a step-change in competition between investment firms, stock exchanges and other trading venues for the right to host transactions in shares." In the last few weeks we are seeing these words impact the European investment banking world with a vengeance.
At the beginning of this month, exactly 12 months before MiFID is to be implemented, Equiduct announcing a single connection, MiFID-compliant, integrated Europe-wide service for trading and execution services. Equiduct, based on the EASDAQ platform also used by NASDAQ, is expected to go live in Q2 2007.
Last week, a group of seven major investment banks, including, it is reported, Merrill Lynch, Morgan Stanley and Deutsche Bank, confirmed market rumours which had been around since September, and announced that they had signed a letter of intent to pool their trade transparency data and create a pan-European platform for the collection and sale of trading data that will bypass those operated by exchanges. This process builds on the MiFID-allowed process of "systemic internalising" where an institution can cross trades internally without going near an exchange providing it complies with transparency and best execution requirements. A combination of institutions sharing this approach will create a major new liquidity pool.
Exchanges are not unaware of these threats and many European trading venues have been looking for partners. Euronext is near to finalising a merger with the New York Stock Exchange which will give the Europeans access to increased capital to develop new services, and gives the Americans a new market to overcome the Sarbanes-Oxley induced flight of new capital from US to European and Asian investment centres. Recently, Euronext confirmed reports that they were considering developing their transaction platform to offer an internal matching service to their clients. This is seen as a way of preventing banks from cutting them out all together from stock transactions. Also this month, Germany's Deutsche Börse, announced plans to introduce MiFID-related services including transparency and trade reporting, bilateral trading and best execution services in Q2 2007 in time for the introduction of regulation.
Finally, at this week's opening of business, NASDAQ, New York's second major market, made a fresh bid for the London Stock Exchange (LSE) whilst also raising its stake to 28.75% by mid-morning. NASDAQ, which made a failed bid for the LSE last March, referred to the fact that MiFID made it easier for alternative trading platforms to compete. Robert Greifeld, NASDFAQ's Chief Executive, is quoted in the FT as saying, "While LSE has done very well as a standalone entity, in the future it's very important for this consolidation to take place". Late on Monday the LSE turned down NASDAQ's offer so it will now go to a shareholding battle."
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