Equiduct Comes Out Fighting After MiFID Ruling

Terry Flanagan

Equiduct, the retail-focused pan-European electronic trading platform, has hit out at some of Europe’s incumbent exchanges after the region’s regulator came down in its favor over a pre-trade transparency ruling.

Following the decision earlier this week by the European Securities and Markets Authority to issue Equiduct with a clean bill of health with regard to the Markets in Financial Instruments Directive (MiFID), its chief executive has come out fighting.

“I’m delighted with the ruling,” said Peter Randall, Equiduct’s CEO. “We’ve known for a long time internally and from hiring high-priced legal help that the model was MiFID compliant.

“We’ve also known for a long time that our competitors have been going round to see our customers and prospects to tell them with increasing ferocity that our model was not MiFID compliant and even, in some cases, to say that it was ‘illegal’.

“And although our customers continued to believe what we were telling them, this ruling removes that nagging doubt. The removal of that is a very powerful support for our business.”

The verdict allows Equiduct, which operates through the Börse Berlin, to be an approved trading venue under German law that is recognized by all European Union member states.

MiFID’s pre-trade transparency regime requires all regulated markets and trading platforms to make prices public. This may be waived in certain circumstances, for example if the platform takes a reference price from another public market, or if the orders it receives are larger than normal.

Equiduct’s service does not operate under a waiver. The service works by displaying the best bid and offer prices available across multiple European trading venues and then pledges to match the best price to retail brokers via its network of market-makers.

Under MiFID, retail investors, unlike institutional investors, do not have to be offered ‘best execution’—meaning brokers tend to usually link to the primary exchanges and therefore miss out on cheaper stock at the less expensive alternative venues. However, Equiduct supplies retail brokers with a smart order router at low cost so they get the consolidated volume-weighted best bid or offer for their size of trade at all venues.

“In Esma’s opinion [the] trading system complies with requirements for hybrid systems under Article 17(5) of the MiFID implementing regulation,” said Esma in a statement.”In other terms, the system is considered pre-trade transparent and MiFID compliant.”

Randall anticipates “an escalation of sales activity” after the ruling. Equiduct, which is controlled by two U.S. brokers, Citadel and Knight, focuses on the UK, German and NYSE Euronext markets of Belgium, France, Netherlands and Portugal.

“It shows the completely bankrupt marketing strategy of some of our competitors who have, rather than try to innovate themselves, led them to disparage others’ efforts in this field,” said Randall.

“We started 18 months ago and we now have 3.5% of the French market and we are certainly hurting Euronext and we only started in Belgium less than year ago and are getting good market shares in those stocks too. So it’s not particularly nice for them as they are getting nibbled away at both ends; at the high volume end by Bats and Chi-X and at the high value end by ourselves—so they are being forced into a rather unpleasant middle position.”

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