MiFID – Exchanges in November 1st free-for-all?

MiFID may be seen by many City brokers as a fundamental pain but, as the implementation date comes closer, it is apparent that markets and exchanges may be the players that will see the greatest upheaval.

As part of its contribution to the European "level playing field" for investment banking services, MiFID opens up the exchanges markets, firstly, by allowing firms to bypass exchanges and offer pricing and order matching services for their clients - the systematic internaliser option and, secondly, by removing the last trappings of exclusivity that national stock exchanges have enjoyed in the past.

Recently two new London based stock exchange services providers have announced the technical details of their plans for expanding into this market. Plus Markets will use the services of OMX Technology, the Swedish specialist in stock exchange systems which drive 60 exchanges in 50 countries, to both offer new services and to increase their capacity. Simon Brickles, Chief Executive at Plus told the FT that "This is a world-class technology provider. From November 1, we will have the ability to trade 5,000 stocks, compared with the 850 trading on our platform now. Capacity issues will not hold us back."

Project Turquoise, the working title for a consortium of seven global investment banks - Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, Merrill Lynch, Morgan Stanley and UBS – plans to bypass the exchanges by offering a pan-European exchange facility. It has recently announced that it will tie in with the US's Depository Trust & Clearing Corporation (DTCC) who will provide systems through a new European subsidiary, called EuroCCP.

Both these new operations have the advantage of not being encumbered with old technology, expensive premises and large numbers of staff. Price of services will be a major factor in the post-November 1st market. Plus only employ 43 staff and should not have to increase proportionately to the amount of new business they will receive. Turquoise will outsource to a brand new facility and have already announced that their main driver is significantly to reduce trading costs.

Where will this leave the London Stock Exchange? They are doing well at the moment but much of this could be said to be on the back of the attractiveness of London as a listing location following the well-publicised problems in the USA. And this will benefit the above competitors as well. Can the LSE be meaner, faster and cheaper than the competition? The battle should make London even more attractive as the world's financial centre.