Chi-X takeover will not reduce competition

If successful, the proposed takeover of Chi-X Europe, the largest European multilateral trading facility (MTF), could significantly change the continent’s trading landscape, however experience from the US suggests consolidation would not reduce competition between Europe’s trading venues.

The board of the Chi-X Europe received a bid for the MTF over the weekend from an unnamed party and speculation is rife as to who would want to own the business.

Rival MTF BATS Global Markets and exchange group Nasdaq OMX have both been suggested as possible bidders by sources.

Chi-X Europe is currently owned by a consortium of financial services firms and investment banks, in contrast to the rest of the Chi-X branded businesses which are owned by investment bank Nomura, via Instinet Holdings (Instinet owns about a third of Chi-X Europe, the biggest single stake in the firm). The timing of the bid has surprised the market as Chi-X can be expected to trade at a significant premium if the deal goes ahead.

The MTF had a market share of 17.49% of pan-European equities trading by turnover in July 2010, according to data provider Thomson Reuters’ Equity Market Share reporter. Alasdair Haynes, CEO of Chi-X Europe, also claims that it has made a modest profit in 2010.

Its rival MTFs have not seen much success. Nasdaq OMX Europe, an MTF owned by Nasdaq OMX, closed down on 1 July 2010, after it failed to consistently attract more than 1% of pan-European market share by turnover.

The London Stock Exchange Group bought a majority stake in MTF Turquoise on 18 February 2010 from its consortium of bank owners after it too had failed to attract significant volumes, trading 2.9% of pan-European equities by turnover in January 2010.

Swiss exchange SWX shut its own pan-European trading venue, SWX Europe, on 30 April 2009.

Of the existing major exchange groups, German exchange Deutsche Borse has been ruled out as the initial bidder by some sources, noting that it would require a complete change of strategy given the significant investments it has made in its Xetra trading platform, while the market share of the London Stock Exchange (LSE) is considered too large for competition authorities to permit a bid.