Last Friday, Turquoise achieved over 10% market share in four FTSE 100 stocks – Wolsey, Tesco, Drax and Kingfisher. Interestingly, Chi-X had a good slice of these stocks too and so it looks like the first hard evidence is emerging that some FTSE 100 stocks will fragment substantially over multiple MTFs. Most significant was that nearly 40% of Kingfisher (FFI 2.17) was traded away from the primary exchange on alternative MTFs. This is good news for new venues like BATS and Nasdaq OMX as it seems to indicate that there is no defined limit yet as to how far a stock will fragment away from its primary market. Some observers thought that the new MTFs would be scrabbling over the same amount of “alternative” liquidity. In fact, it seems that the opposite is the case and that, as more alternative venues launch, then more and more liquidity will divert to the new venues.

The bigger question, though, concerns viability. Just because an alternative venue can attract market share in some stocks there’s no guarantee that it can actually make money. I saw today that Nasdaq is extending its net zero pricing model in “its determination to attract liquidity”. Whilst this is to be applauded, I continue to think that new venues need to understand why some stocks fragment more than others and focus on these. History shows that there are no winners in wars of attrition. In my view it is far better to find a niche and expand outwards than it is to attack on all fronts.