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The Glittering Prize

Just as we were looking forward to World Cup fever beginning to assert its grip at Fidessa Towers, BATS Europe has reminded everyone that there are other prizes at stake this summer as it unveiled the latest addition to its smart routing capability. The new service is called BATS+ Primary and builds on the CYCLE and RECYCLE smart algos it already offers. The basic idea is that an order comes into BATS and then, if it fails to find a match, those nice chaps at BATS will forward your order on to the LSE. And, even better, they will only charge you 0.28 bps regardless of whether your order trades with them or at the LSE.

Mark Hemsley, CEO of BATS Europe, confirmed that this price promotion is scheduled to run for at least the next two months and pointed out that it’s a lower access fee than the current pricing offered by the LSE and is irrespective of order volume.

BATS is betting that it has enough liquidity already to interact with this new flow and so will not have to onward route to the LSE too often. Certainly BATS has been successful with similar promotions in the past as some of the new flow it attracts will stick even when the price incentive is removed. So, if BATS+ Primary does work then maybe NYSE Euronext and Deutsche Börse should watch out too.

The idea of market centres onward routing flow that they can’t match is standard practice in the US where Reg NMS compels venues to route to other destinations offering a better price. This is in contrast to MiFID which allows the concept of best execution to be interpreted in a wide variety of ways by different market participants. The fact that, in Europe, brokers and venues both offer smart or onward routing services shows just how confused the whole situation is becoming. This is especially true as more and more large brokers wade into the venue space and register their own dark matching facilities as MTFs with the FSA. Unlike Reg NMS, however, MiFID’s principle-based approach doesn’t offer much help in all this. Maybe what we need are much clearer definitions as to how participants compete for the Liquidity World Cup.

The reaction from Paternoster Square will be interesting, too – will the LSE adjust its pricing (again) or tough it out until its new low latency Millennium Exchange platform is up and running?

Either way, whilst we debate the merits of omitting Theo Walcott from the final squad and argue over likely England formations, it looks like we will have to keep an eye on BATS’ market share too.

Finally, on the subject of prizes, thanks to the folks at Inside Market Data for judging the Fragulator® the ‘Most Innovative Market Data Project’ at their awards ceremony in New York last week. Let’s just hope that the summer sees even more silverware return to London!

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