Spain’s BME Continues to Hold Off Rivals as Another MTF Readies Itself for Battle

Terry Flanagan

Quote MTF, the Budapest-based pan-European multilateral trading facility, is the latest venue to try and crack the tough nut that is the Spanish equities market.

Incumbent exchange Bolsas y Mercados Españoles (BME), the Madrid-based bourse that continues to have a near monopoly on equities trading in Spain, has come out fighting in recent months with a raft of new technological initiatives to increase volumes as various pan-European MTFs have looked to break this vice-like grip.

Quote MTF, with its partner Capital Partners Group, a U.K. investment bank, is to launch the new Spanish venue called Spain-X MTF “in the next few months”.

“This is about bringing much-needed competition to Spain,” said Claudio Rojas, senior director at Capital Partners Group.

Bats Chi-X Europe, a pan-European MTF that is also Europe’s largest equities exchange, with around 25% market share, has tried its bit at breaking into the Spanish market this year by unveiling various price promotions.

Spain, despite the original Markets in Financial Instruments Directive (MiFID) in 2007, which opened up national stock exchanges to competition in Europe, has been slow to embrace MiFID and inefficient post-trade processes have created severe barriers to entry for MTFs looking to establish themselves.

Turquoise, too, the London Stock Exchange-owned pan-European MTF, with about 4% market share across Europe, has also made a play this year at gaining more volumes in Spain, also with a series of price promotions.

However, the BME, which started the year with a market share in Spain at over 98%, has clawed back lost volumes in recent months to be currently hovering around the 94%-96% range. Bats Chi-X Europe has seen its market share in Spain fall back to around 4%, from highs of just over 6% from May-July, while Turquoise is now back down to around 1% Spanish market share, despite seeing volumes rise to around 2% in the early summer months.

Exchange executives usually talk about a ‘magic’ 5% market share barrier when brokers and other traders will begin to take a venue more seriously in terms of best execution, so it appears that the BME is currently winning the battle.

This puts in context Quote MTF’s task. The trading platform, which launched in April 2011, currently has less than 1% of market share across the whole of Europe. Spain-X MTF will utilize Quote MTF’s technology service Qube in a bid to keep costs low.

Tamas Madlena, the chief executive of Quote MTF, believes though its new Spanish venue “can orchestrate a valuable contribution to the market structure in Spain”.

MTFs are still keen to tap into the Spanish market, which is Europe’s fourth largest stock market with €1 trillion annual trading volumes, as they believe that recent changes to Spain’s clearing and settlement rules will finally encourage new entrants.

However, earlier this year, another MTF called Pave, which had the same intentions of challenging the BME, was forced in February to put its launch on ice, citing “the very challenging market and harsh financial environment in Europe, especially in Spain”.

Due to falling volumes in European equity markets generally, several MTFs in Europe have been struggling to make a profit recently and some market participants are predicting consolidation in the industry. To illustrate the point, Swedish-based MTF Burgundy was recently snapped up by Oslo Børs, the Norwegian stock exchange.

The BME, meanwhile, is now less than a month away from offering co-location services, in a bid to attract more high-frequency traders to the exchange. Slated to start operations from November 12 from its Madrid data center, it will allow firms to place their automated trading systems just a few meters away from the BME’s cash and derivatives trading engine. The new co-location service, which will reduce latency between London and Madrid to 13.8 milliseconds, will supplement the BME’s existing proximity hosting offering, which was first launched in 2009. The BME has also recently upgraded its trading platform on to a single system and reduced latency tenfold to under one millisecond.

“We want ways to promote connectivity,” José Parga, managing director of BME Visual Trader, its IT subsidiary, told Markets Media in August. “Anything we can do to attract liquidity and make it easier for connectivity, we will do.”

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