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A Time for Anticipation | For Front Office, More of the Same Means More $$$$ | MiFID Brings New Trading, Data Management Opportunities | Easdaq Makes a Comeback as Equiduct | Clearing Firms Extend Their Outsourcing Businesses |
Easdaq Makes a Comeback as Equiduct
January 1, 2007
Incumbent European securities markets will soon face a new challenger, Brussels-based Equiduct, which has emerged in hopes of capitalizing on the Markets in Financial Instruments Directive (MiFID).
Equiduct is based on the technology of Easdaq, an electronic trading platform that closed in mid-2003 after the Nasdaq Stock Market, which had bought a controlling stake, stopped funding it. Equiduct bills itself as a true pan-European exchange-one that offers a single point of connectivity to all markets, rather than linkages to the various exchanges.
When it goes live in the second quarter of 2007, pending regulatory approval, Equiduct will initially handle the most liquid 500 European stocks-a list to be issued by the Committee of European Securities Regulators. Of the 500, about 140 will be in U.K. shares, 80 in German and 60 in French, with the rest listed on other European Union exchanges.
"MiFID is intended to promote cost-effective pan-European trading, not trading in isolated national exchanges," says Robert Fuller, Equiduct's chief executive, drawing a contrast with its predecessor. Previously director of IT strategy at Dresdner Kleinwort Wasserstein, Fuller led its MiFID preparation efforts and was co-chair of the MiFID joint working group's IT committee.
Fuller and others are adamant that post-MiFID trading volumes will not automatically flow to existing national exchanges. Equiduct's objective, Fuller pointedly says, is to achieve a consolidated Europe by connecting, not by following the lead of larger exchanges that want to buy up others. Equiduct has the support of its president, Jos Peeters, the Belgian entrepreneur who helped found Easdaq in the mid-1990s and bought back a controlling stake in the business for a "nominal sum" after it collapsed.
The venture, which has its IT platform in London and a half dozen employees in London and Brussels, is seeking a second round of funding.
Aside from growth in cross-border trading, Equiduct's success also depends on the European Commission making progress in simplifying clearing and settlement outside of local borders. Fuller is confident that large investors will be eager to trade in baskets of European stocks without working through individual exchanges.
While old and new trading venues alike will be vying for post-MiFID market share, Fuller says that Equiduct will be clearly differentiated from efforts such as Project Turqoise, which is "owned by a small number of tier-one banks." He anticipates there will be enough appetite for his platform from firms in tiers two and three that do not want to bear the up-front costs of MiFID compliance.
Equiduct will feature pre- and post-trade transparency, a hybrid book, a quoting facility and best-execution capability for equities. The system promises guaranteed execution at a provable best price and with a ten millisecond turnaround time for accessing multiple pools of liquidity-other exchanges as well as alternative venues such as multilateral trading facilities and systematic internalizers. To ensure low latency, the firm has short-listed "a group of IT providers," but Fuller would not disclose their names.
Equiduct will not be offering front-end connectivity software, but will work with order management systems and execution management systems and accept orders in the FIX protocol. The new exchange, says Fuller, will also link with European clearinghouses and securities depositories to offer post-trade processing.
Richard Balarkas, co-chair of the FIX Protocol Ltd. global steering committee and managing director and head of equity trading services at Credit Suisse, reacts favorably to Equiduct. "MiFID is likely to result in liquidity fragmentation as happened in the U.S.," he says. "Therefore, to insulate the market against the cost of multiple links by building a hub facility with access to all the pools is good."