Speed Isn’t Everything

Terry Flanagan

While low latency and high speed continue to be touted as some of the most important aspects of a particular exchange, some participants believe that it’s fast approaching a point of diminishing returns.

“Size and speed are important, but not the way that people think,” said Alasdair Haynes, chief executive officer of Chi-X Europe, during a conference held at Baruch College. “Each exchange is getting faster and faster. But speed is irrelevant when it comes down to the nanosecond and picosecond. We’re not the fastest, but as long as you’re in the zone, you can compete.”

“The key thing about speed is, just look at the human,” added Haynes. “We are top of the food chain, and we’re pretty slow. The truth is we’re well configured. That’s what an exchange is when it comes to speed, it’s about how well configured it is.”

Since its inception in 2007, Chi-X Europe has climbed up the ladder in European trading and has quickly been able to garner significant market share from incumbents in London, Paris and Frankfurt. It has recently been able to surpass the London Stock Exchange in total notional value traded over a full month. According to data compiled by the Federation of European Securities Exchanges, Chi-X during August handled 43 billion trades, processing €213.8 billion ($293 billion) in total transactions. In comparison, the LSE handled 26.3 billion trades worth €205.2 billion during the month. While this was the first month that Chi-X surpassed the LSE in notional value traded, Chi-X had long been handling the most trades and shares in Europe.

Chi-X Europe credits the success on its streamlined, efficient operations.

“Size is important, you need to be small, efficient and effective,” said Haynes. “We are just smaller. We have just 47 staff in Chi-X Europe.”

Chi-X Europe was founded in 2007 by Instinet, an agency-only broker. Today, it is owned by a consortium of banks and broker-dealers, including BNP Paribas, Citadel, Citigroup, Credit Suisse, Fortis, Getco Europe, Goldman Sachs, Instinet, Merrill Lynch, Morgan Stanley, Optiver, Société Générale and UBS. Today, Chi-X Europe has about 20 percent market share in Europe.

Chi-X Europe is currently the target of a takeover from Bats Global Markets. The transaction is currently awaiting regulatory approval from the U.S. Competition Commission. A decision on the deal is expected by early December.

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