Who is going to survive in the MTF world? Most of the MTF business plans were written two years ago, long before the majority of us realized the extent of the market downturn.
I would guess that nearly all of the MTFs are struggling to gain profitability. Some are known to be miles away from being lucrative. In better times innovative companies would have raised money with ease, particularly when banks were wondering what do to with all their imaginary wealth. But as most banks are now trying to shed costs, speculation is rife that some MTFs will have to merge, or be bought out by the incumbent exchanges.
CHI-X, one of the first and largest MTFs, has seen its gross consideration fall from a peak in Q3 2008 of EUR246.3 billion, to a Q1 2009 EUR148.9 billion. Turquoise has had to cut staff recently due to low market volumes. According to a Deutsche Bank Autobahn Equity newsletter, Turquoises average daily turnover fell by 32% in March.
While many saw MiFIDs demand for best execution as means of opening up the marketplace in Europe and increasing competition, many trading desks lack the ability to seek and execute effectively within these new pools of liquidity. For once, new regulation has moved faster than technology, and while there may be some intelligent smart order routers designed for the post-MiFID fragmentation era – such as Quod Financials Adaptive Smart Order Router, many remain in the dark (the bad kind).
Instead if waiting for technology to play catch-up, there are clamors for MTFs to start diversifying. Most MTFs concentrate on the top number of stocks in their respective markets. One of the criticisms raised by delegates at the recent TradeTech Europe is that MTFs need to move further down into the smaller stocks. It is only a matter of time before we see consolidation or capitulation, even in this mini-bull market.