May 09, 2012
Size priority on agenda as BATS-Chi-X evolves
BATS Chi-X Europe
could modify one of its dark pools to match orders based on size as the dual
multilateral trading facility (MTF) prepares for a new growth phase following
its successful technology integration.
Following the
acquisition of Chi-X Europe by US-based BATS Global Markets in November last
year, the migration of Chi-X Europe onto BATS’ legacy technology platform was
completed on 30 April.
The firm now runs
four pan-European order books – two lit and two dark – giving it the
opportunity to recalibrate its offering for different types of trading
strategies.
“We have been talking for a while about changing the
model of one of the dark pools we have, for example by introducing a size
priority matching logic,” Mark Hemsley, CEO of BATS Chi-X Europe, told theTRADEnews.com. “We are also looking at
options for lit pricing to attract different trading participants, which we
could do by sliding up and down the maker-taker scale or going for a more
traditional taker-taker model.”
BATS Global Markets also operates two US equity
exchanges that offer distinguished pricing strategies. BZX offers a maker-taker
model, while BYX, which launched in October 2010, offers pricing that rebates
members for removing liquidity and does not charge for adding liquidity in order
to attract more flow from retail brokers.
As part of the
integration of Chi-X, a service first introduced by BATS Europe that enables
member firms without smart order routing technology to access multiple markets
via the MTF had now been extended to the Chi-X order book.
“We plan to add sophisticated routing strategies that
allow market participants to sweep multiple BATS-Chi-X Europe order books
before searching for liquidity in external venues,” said Hemsley.
BATS Chi-X Europe
accounts for around a quarter of overall pan-European equity trading and
represented 32.4% of the region’s dark MTF trading last month, according to
Thomson Reuters.
Data
opportunities
BATS Chi-X Europe
will now seek revenue opportunities from market data. Industry debate regarding
market data fees has been rife since the introduction of MiFID in 2007, with
domestic exchanges criticised for being slow lower fees.
Exchanges have
clubbed together through trade body the Federation of European Securities Exchanges to help progress towards the introduction of a standardised source of
consolidated post-trade data and the European Commission favoured a commercial approach to the tape’s creation in its MiFID II proposals last October.
"We are definitely looking at how we get some
income for market data, but we are keen to position ourselves so we can help
the industry achieve a cost-effective consolidated tape,” said Hemsley.
“Exchange market data fees are too high, so we are paying careful consideration
to how we price our data relative to incumbent exchanges."
The venue
operator is also considering ways to move forward on its equity derivatives
service, first initiated by Chi-X Europe last October through a partnership
with Russell Investments. The joint venture resulted in the creation of the
Chi-X Europe Russell Index series, a collection of European indices across 14 of the continent’s markets
that have been designed to become tradable products.
Hemsley is under
no illusions as to the difficulty of establishing a European equity derivatives
offering to compete with Eurex and NYSE Liffe, the derivatives markets operated
by failed merger partners Deutsche Börse and NYSE Euronext respectively.
“The lack of fungibility between different types of
derivatives and the integrated trading and clearing infrastructure operated by
incumbent markets will make entering this market challenging,” said Hemsley.
“Some of our existing cash equities CCPs have indicated that they would clear
equity derivatives and we are also in discussions with clearers that we aren’t
connected to.”
Further evidence
of the task faced by BATS Chi-X Europe can be found with London Stock
Exchange-owned MTF Turquoise, which has struggled to gain meaningful traction
for its derivatives market since launching last summer. According to
Turquoise’s figures, trading in FTSE index options totalled £56.3 million and
trading in FTSE index futures reached £2.49 million last month.
Listed
derivatives trading could be more competitive under MiFIR, the regulation that
accompanies MiFID II. Under the European Commission’s proposals published last
October, CCPs would be required to clear instruments regardless of the venue on
which they were executed and requires trading venues to accept clearers on a
non-discriminatory basis. MiFID II is currently being debated by the European
Parliament, with implementation of the revised directive expected in 2014.