While attention is firmly fixed on the takeover and merger talks surrounding Europe’s exchanges, investment banks are quietly contemplating proposals that could lead to a far more radical redrawing of the equities trading landscape in Europe.
“What’s taking place is a major re-examination of the boundaries between broker dealers and exchanges,” says Duncan Niederauer, co-head of Goldman Sachs’s equity execution services division. “Broker dealers with depth and breadth of liquidity are looking at developing their own crossing networks and will do so if there is institutional demand.”
Investment banks are thought to be in the very early stages of their deliberations but there are powerful winds pushing them in the direction of setting up their own alternative trading systems (ATS).
“I think it’s inevitable,” says Seth Merrin, the founder and CEO of Liquidnet, a highly successful buy-side-only block-trade crossing system. “It’s just something they have to do for economic as well as competitive reasons. Most of them still have football field-sized rooms of traders, which is a very expensive way of doing things when much of the flow they handle could be put into an ATS.”
Investment banks already do a lot of automated internal order matching for certain types of orders through their existing trading systems.