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Thinking in new ways – Part II

I wrote last week about how the LSE is planning on revitalising the corporate bond market with a special focus on making it simpler for retail investors to trade these instruments. This is part of its multi-faceted response to fragmentation which has seen the market share of the LSE and other primary exchanges severely eroded by the new MTF community. Part of the challenge these big venues face, however, is that their smaller competitors can continue to move the goal posts.

One example of this is Equiduct which was originally formed by Börse Berlin in 2007. Equiduct’s model was highly innovative although its more retail-centric approach has meant that it has found it harder to gain traction amongst the institutional community. Yesterday, however, Equiduct announced a strategic partnership with Citadel Securities that will launch Equiduct squarely at the European retail and small investor sector. Speaking to Artur Fischer today, he said that whilst most of the other MTFs are “fighting over the same bone” (i.e. institutional order flow), Equiduct will take advantage of the fact that retail and other small investors are now becoming aware that better prices are sometimes available on MTF platforms. This collaboration mirrors another announcement a few weeks back by Optiver and BinckBank that have jointly launched The Order Machine (TOM) which aims to offer a similar service to retail investors in Holland. Both of these initiatives offer an away routing service to other MTFs in the event that they don’t offer the best price themselves. In this way, they offer a useful “one stop shop” for smaller investors dazzled by all the new venues soliciting their order flow.

Obviously the level of sophistication amongst European retail investors varies from one country to another but one thing looks certain: they will soon be awash with new instruments to trade, greater transparency and lower trading costs. Hang on a second! Isn’t that what MiFID was supposed to be about? Maybe those guys at MiFID mansions knew what they were doing after all.

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