10.17.2012
By Terry Flanagan

Exchange Consolidation on Cards in Europe as Oslo Børs Snaps Up Burgundy

The move by Oslo Børs, the Norwegian stock exchange, to buy its Swedish rival, Burgundy, is a bid to increase market share in the Nordic region—but the deal brings into question the fate of some other European multilateral trading facilities.

Subject to regulatory approval, Oslo Børs plans to buy Burgundy, the Swedish-based MTF which is owned by a consortium of banks and brokers, to fight off growing competition in the region from Nasdaq OMX, the Nordic arm of the transatlantic exchange operator that operates seven Nordic and Baltic exchanges, as well as Bats Chi-X Europe, the leading pan-European equities venue.

Due to falling volumes in European equity markets generally, Burgundy, like several other MTFs in Europe, have been struggling to make a profit recently and further consolidation in the industry is predicted.

“There are so many MTFs already out there, they are so highly populated and the margins are so small,” a London-based source told Markets Media.

Alternative trading venues sprung up across Europe from 2007 following the original Markets in Financial Instruments Directive (MiFID), a key piece of securities reform which paved the way for more competition, and incumbent venues have seen their previously monopolistic market share eroded significantly ever since.

The MTF model of offering cheaper prices and newer technology than the national exchanges worked well to start with but the market place has become ever more populated, with some estimates that there are now upwards of 300 MTFs in Europe.

The space has already seen some mergers and acquisitions, with the London Stock Exchange buying Turquoise, which was originally set up to challenge the LSE, in February 2010. A few months after this, Nasdaq OMX closed its Neuro platform, while Bats merged with Chi-X Europe in November last year.

“This is exactly what we predicted three or four years ago would happen,” Alasdair Haynes, chief executive of a new trading venue called Aquis Exchange, which will be launching across Europe next year, told Markets Media. “There would be fragmentation as new companies set up and then an era of consolidation.

“That is exactly what is happening now,” said Haynes, who was also a former chief executive of Chi-X Europe. “To succeed in this business you have to be pan-European and niche players are at a massive disadvantage especially when their USP is geographic. There isn’t the volumes in the market right now to make a Burgundy work.”

Oslo Børs, meanwhile, will use Burgundy, its smaller rival that commands about 5% of the Nordic market and offers trading in Swedish, Norwegian, Finnish and Danish shares, to halt sliding market share in the region. The deal is expected to complete by the end of the year. Oslo Børs has unveiled some quirky initiatives in the last few months to win back lost volumes, notably when it cut trading hours in July in a bid to concentrate trading.

“Oslo Børs and Burgundy will work together to continue the development of a strong and effective Nordic platform for both investors and issuers, based on efficient, low-cost operations,” said Bente A. Landsnes, president and chief executive of Oslo Børs, in a statement. “The combination of Burgundy’s well-known brand and the international strength of the Oslo Børs brand name will provide a strong foundation for future growth.”

Under the deal, Oslo Børs will scrap Burgundy’s Cinnober-based trading platform and migrate the exchange to the LSE’s Millennium system. Oslo is moving to Millennium next month and Burgundy will follow some time next year. Burgundy will continue to offer clearing and interoperability with its existing clearing houses EMCF, Six x-clear and EuroCCP.

“Burgundy has been a key player in educating and transforming Nordic banks’ way of trading in the post-MIFID landscape,” said Bertil Villard, chairman of the board of Burgundy, in a statement. “Scale and international distribution will be important ingredients in Burgundy’s future development. The board has concluded that the best solution is to make this transaction with Oslo Børs who has strategic interest to expanding their business in the Nordics and with whom the shareholders already have an existing long-term relationship.”

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