Experts on the European execution venue landscape are split on whether the future of that landscape is consolidation or fragmentation, as they expressed in a panel discussion on the topic at the Intelligent Trading Summit in London on 2nd February.
Multi-lateral trading facility (MTF) activity has increased, according to Will Winzor-Saile, an execution architecture executive at Redburn. While consolidation is a perpetual phenomenon among exchanges, new regulations (such as MiFID II) drive creation of new trading venues, Winzor-Saile said.
“ECNs will become SIs [systematic internalisers]. MTSs will go to block-only liquidity,” said Winzor-Saile. “That’s going to change so there are a lot more venues to connect to, but there are only so many venues any company can connect to. We can get to a large number of venues, but there’s still limits to the number we can access. As we get that fragmentation, it’s inevitable that you need consolidation to counteract that.”
Another part of European execution venue landscape considerations, aside from possible mergers of major exchanges, or fragmentation of venues, is the placement and number of co-location data centers near exchanges and trading venues, as Winzor-Saile also remarked upon. “Co-location is becoming standard,’ he said, “but with how markets have moved, everyone is consolidating around one or two data centers. Demand is now consolidating. It’s now about ensuring the accuracy of those systems. We’re not reacting to every single market tick. We must understand where the market is going, what venues we can access and how.”