Barriers to Entry Remain High

Terry Flanagan

Multilateral trading facilities have had difficulty gaining a significant foothold in the Spanish markets, despite some offering a pricing promotion on the most liquid local securities.

“The bottom line is that the Spanish market structure – post-trade infrastructure in particular – has not been conducive to allowing competition,” a market participant told Markets Media. In contrast to the way other European markets have implemented MiFID, Spanish regulation did not allow direct access its national settlement firm Iberclear, which is owned by Bolsas y Mercados Espanoles. Only members of BME have direct access, thus a pan-European clearer such as EMCF was prevented from directly accessing Iberclear for settlement.

Bolsas y Mercados Espanoles, Spain’s national stock exchange, has a stranglehold on its local market, with market share of about 95%.

Prior to its acquisition by Bats Europe, Chi-X Europe implemented a temporary pricing promotion in Spain designed to boost its market share in the region. Under the promotion, orders of Santander, BBVA, Iberdrola, Inditex, Repsol and Telefonica, the six stocks accounting for about 80 percent of the total volume traded in Spain, will be free of trading, clearing and settlement fees once clients have traded more than €200 million of those particular stocks within a single month. The exchange, which operates under a maker-taker pricing structure, will also increase the rebate offered to liquidity makers, from 0.2 basis points to 0.3 basis points.

At the start of the promotion, Chi-X Europe had about 2% market share in Spain. It increased marginally to about 3% as of the end of December. Its goal at the inception of the program was to hit the 5% market share mark, which is a key tipping point for most brokers’ best execution policies.

Bats Global Markets’ acquisition of Chi-X Europe also closed in December. The combined entity represents about a quarter of all European equities trading. The acquisition of Chi-X Europe was announced in February 2011. Bats then announced in May its plans to go public in a $100 million initial public offering. Initially slated for late 2011, the IPO is now expected to occur in early 2012. U.S. regulators in August gave approval for Bats to start listing shares, allowing the Kansas City-based trading platform to compete directly with exchange operators NYSE Euronext and Nasdaq OMX.

Tuesday marked the first day that Bats listed securities, when a suite of BlackRock’s iShares exchange traded funds debuted. The funds are linked to indexes of international stocks.

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