LSE Faces Increasing Competition in Pan-European Market

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With Monday 1 September marking the beginning of the first full week of operation for the new trading platform Turquoise, chief executive, Eli Lederman, conceded that the Turquoise team is pleased with how quickly the market is responding to their services, but noted that they have been paying close attention to stability, reliability and performance and that market share will follow. He anticipates that the company will exceed its initial goal of capturing five percent of market share by the end of the year.

Turquoise has been building up to this day during the month of August and Friday, being its first day of trading at full capacity, saw trading in 1,266 stocks in thirteen European countries. As a Pan-European trading platform formed by nine investment banks – BNP Paribas, Credit Suisse, Citi, Deutsche Bank, Morgan Stanley, Merrill Lynch, Goldman Sachs, Société Générale and UBS – Turquoise is setting its sights on a market that is dominated by the London Stock Exchange, and it is not the only newcomer posing a threat. Promoting itself as “the first order-driven pan-European equities multilateral trading facility” Chi-X is reportedly making considerable in-roads into the U.K. market. Moreover, New York City-based, NASDAQ OMX is pushing ahead with its plans to establish a base in London in September, and Kansas City-based BATS, which was recently approved by the U.S. Securities and Exchange Commission to operate as a securities exchange, intends setting up shop in London in the near future.

Investment banks that have long been dissatisfied with increasing fees at established stock exchanges have welcomed the new trading platforms. This increase in competition is one of the objectives of the European Union’s Markets in Financial Instruments Directive (MiFID) which regulates investment services across the 27 member states of the European Union, as well as Liechtenstein, Norway and Iceland.

Although a London Stock Exchange spokesman was reportedly dismissive of any possible threat posed by Turquoise and other competitors, the fact that the well established exchange has introduced lower tariffs effective 1 September is seen as a bid to retain customers who may be lured away by the much lower fees of new rivals. What share of the market will be captured by the newcomers remains to be seen, but the competition is already proving beneficial to traders as is evidenced by the reduction in costs and increase in innovation.

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