Few can have missed the announcements from the LSE’s Turquoise and NYSE Arca Europe that they will each soon begin trading US stocks. Both venues will aim to attract the HFT/algo community which will be able to exploit differences in prices between these platforms and their US counterparts. On this point, the Turquoise plan is particularly aggressive as it will allow users to trade for free initially. This shows just how determined senior management at the LSE Group really are, not just to win back market share but to really get on the front foot in the battle for liquidity. Certainly David Lester, the new Turquoise CEO, sees Turquoise as just the right kind of vehicle they need to help achieve this and introduce new business models quickly.
The interesting thing in all this is whether any such trades fall within the remit of MiFID or not. Obviously US stocks are not included within the CESR list and so it would seem that they should not fall under any kind of MiFID best execution requirement. On the other hand they are being traded and cleared in Europe and so it seems unlikely that any such transaction would come under the aegis of the SEC. Maybe they are exempt from either which raises some interesting issues in the current environment where the overriding view is that we need more, rather than less, regulation. Alternatively, we might see a real touch point on this issue with the very different US trade-through rules having to be interpreted through MiFID style best execution obligations. Not sure that matters for the HFT boys but I guess retail punters like me will be able to ask that pesky MiFID question again next time we want to buy some more stock in Apple or Google.
Anyway, NYSE Arca Europe and Turquoise should be commended for coming up with new ideas that the incumbent MTFs might find hard to challenge. I wouldn’t be surprised if they started to flex their multi-asset muscles further in this respect too.
This is not the first time there have been attempts to stimulate trading of US stocks in Europe. In our blog (www.bourse-consult.com), Peter Cox and I recount a couple of previous episodes in which we were personally involved. So the big question is whether this time is different.
Personally, I think the key to success lies in the post-trade arrangements. Is it enough for Euro CCP to offer settlement in DTCC in the US? Or does the market really require fully fungible clearing between Europe and the US before it will take off? That would make the current discussion about interoperability within Europe look like child’s play!