The alien world of Exchanges

Yesterday was
interesting.  I was invited to speak at a conference for Exchanges  and
the expected players were there: Deutsche Bourse, Reuters and the
London Stock Exchange (LSE); and then there were the newer markets with
the Prague, Warsaw and Bratislava Stock Exchanges; and then there were
the others: NYSE Euronext, Euronext.liffe, Chi-x, Turquoise, Equiduct,
Virt-x and PlusMarkets.

The interesting part it that most of the
latter names didn't exist until a year ago.  Suddenly we are living in
an alien world where, in the last year, we've seen an explosion of
execution venues and players in the exchange markets thanks to MiFID.
MiFID means that the traditional players - the LSE and Deutsche Bourse
- are now just execution venues competing with Multilateral Trading
Facilities (Chi-x) and Systematic Internalisers (Turquoise).

One
of the key things I noted in my presentation is the recent news of the
suspected reverse takeover of PlusMarkets by Turquoise.  Shares in
PlusMarkets were suspended on 5th October with the firm valued at £88
million, as Turquoise rumours abounded, although it should be noted
that these rumours are still not proven.

Why would Turquoise need PlusMarkets? 

First,
to get the technology platform behind PlusMarkets - OMX.  The complex
negotiations around this platform have already delayed Turquoise's
launch by six months or so, and a reverse takeover would speed this
up.   

Second, it would give Turquoise the ability to compete
head-to-head with the LSE and others, as it would give Turquoise the
status of 'Recognised Investment Exchange' (RIE).  An RIE can take
primary listings which currently is the hallowed ground of the LSE and
PlusMarkets (Chi-x is a secondary listing MTF), hence Turquoise would
have serious bite. 

Finally, the takeover would give Turquoise
a management team led by Simon Brickles, the enigmatic CEO of
PlusMarkets.  For a long time now, we've all been saying that Turquoise
is a good idea in principle but who's going to run it?  Now we may know.

If
the takeover doesn't happen, it would be a surprise and a shame as it
makes good sense for both sides.  Funnily enough, one person made the
comment that this would take us back to the pre-Big Bang days where the
main trading exchange is owned by its members ... those were the days!

Meantime, the other
interesting debate was around the fact that the FSA has yet to approve
Project Boat's application for TDM (Trade Data Monitor) status.  Boat announced
(10 page pdf) in April that they would be applying for such status but
the FSA has yet to process.  This could effectively constrain their
success, as the FSA have made it clear that investment firms only have
a 'safe harbour' if they use an FSA-approved TDM.  However, the core
opinion was that this is an example of FSA gold-plating and that CESR
will not recognise this layer of regulation around 'FSA-approved
TDMs'.  After all, you cannot have a local ruling under a pan-European
implementation, so this is discounted under MiFID interpretations as
just being local noise.

Should be interesting to see if the markets view it that way.