The arrival of MiFID is set to cause an explosion of competition and growth in the European equity market that will affect both the buy and sell sides, according to a forthcoming report from the TABB Group, “European Equity Market Sturcture: Liquidity, Trust and Competition.”
“Competition is here with the arrival of MTFs,” says TABB Group Europe managing director and report co-author Andrew Howieson.
The report’s authors say that competition will succeed this time around because the regulatory framework is now in place, multi-lateral trading facilities’ sponsors are closely aligned, members are backing the rivals to exchanges, and high-cost models and cost structures are under pressure. Also, equity trading is quickly becoming commoditized, despite despite different business models. A high dependency on technology is making European trading more similar to the United States.
“This is a crowded market,” says Miranda Mizen, a TABB Group senior consultant and a co-author of the report. In order to be competitive among the growing list of MTFs and exchanges, MTFs will need to differentiate themselves by ownership, target audience, liquidity, cost and innovation.
The report estimates that trading volume will rise an estimated 17% next year over 2008. The future arrival of clearing interoperability will cause trading volumes to rise more quickly.
Broker spending on European trading infrastructure is now over EUR 700 million and will continue to increase over the next few years, by about 3% annually, the report estimates.
Although the market is now crowded, a period of consolidation will occur as mediocre performers come under severe pressure, especially in the long term.
“It will be a bumpy ride, that’s for sure,” says Mizen. “The transformation is underway.”