This is not the first time Nasdaq has tried to crack the European market but this time it is hoping to go the distance. Charlotte Crosswell outlines its plans for success.
Nasdaq OMX Europe launched at the end of September during the start of a volatile period. Had you thought of postponing?
It is always a challenge in these types of market conditions and questions were raised as to whether we should push back the timetable. We had an aggressive timetable and were keen to keep to our original launch date. We had an office in London and we have been working hard since our announcement in March. The last few days were hectic and a couple of customers did put off testing for a few days, although that was to be expected. We have a strong pipeline of business.
What do you think sets Nasdaq OMX Europe apart from its competitors?
If you look at the bigger MTF picture, it comes down to price, speed, technology and sustainability. In our case, we have leveraged our INET technology, (which is the basis for Nasdaq’s US electronic stock market) and have tailored it to the European market. It can handle high volumes at sub-millisecond transaction speeds. The other main difference is our goal to be the most competitively priced platform, and to that end we have been very aggressive. Also, another key differentiating factor is that we offer a service which routes trades through to other primary exchanges or platforms when they don’t match on our order book. Due to our low costs of starting up and our existing well reputed technology, we also have a sustainable model which is important in the current market.
Can you expand on the order routing service?
We will use Citi’s memberships and technology to give our customers efficient, fast and low cost access to multiple pools of liquidity – MTF’S and primary markets – across Europe. I think people recognise that Europe is different from the US. It is much more fragmented with different markets, currencies and regulations. Our service offers participants access through a single connection and is particularly useful to people who do not have smart order routing systems. One of the ways we took market share away from the NYSE was by targeting mid-tier firms who did not have this technology. Orders will automatically execute on our own order book if we can match or better the best price in the market. If not, we will route to the market with the best price.
And what about the pricing promotion – which includes a 25% increase in rebates to 0.25 basis points for adding liquidity on the market by posting sale or purchase orders on the book, and a further 17% discount for removing liquidity from the Nasdaq OMX Europe order book?
Our promotion is part of our promise to deliver a better trading experience to investors, while at the same time reducing costs not only on our own book but also across other marketplaces in Europe. We are charging an all-inclusive transaction fee of 0.25 basis points for routing orders in UK-listed equities to other MTFs or the London Stock Exchange (LSE), representing a further 70% reduction in current routing charges to the LSE. We introduced this in early November and it applies to all Nasdaq OMX Europe market participants. If we cannot offer the best price we will route it away to the venue that does. As for the future, the promotion runs until the end of the year and we will determine whether to extend the price promotion.
This has not gone down well with the LSE. What do you think of its response of charging one basis point on equity orders channelled to its market from competing platforms and criticising the promotion?
I think our move has sent a wake-up call to the European exchanges that competition is here to stay. LSE’s action seems to be contrary to the core principles of MiFID and we are sticking with our pricing, regardless of the LSE tariff. If we can offer price improvements, then I believe it is a good thing and will apply more pressure on the sellside to use our platform.
What do you see as future challenges and what are your plans for the 2009?
One of the advantages that we have is our low overheads. We only have 25 people and we are using the offices that were already in the group. This enables us to build our business while keeping our costs down. We started trading 25 FTSE 100 stocks on the 26th September and over the weeks rolled out to 600 across Europe. We will continue to add to the list and the goal is to reach 700 European blue chip stocks. Our target is to capture 5.0% of trading in a year’s time while our long term objective is 20%.
Our aim is to attract a wide range of customers and next year we will continue to build market share. We plan to target small to mid-sized brokers as well as spend more time with all our customers in order to ensure that we are responding to their needs.
What do you see as the big issues in the market in general?
One of the big problems is the lack of a consolidated tape of pricing trade data and we are participating in discussions with other MTFs to see if we can find a resolution. There needs to be more transparency in pre- and post-trade reporting. Everyone wants liquidity to move from the main markets and then once it does, we can compete for it. However, now when one of the main primary markets goes down, it is difficult to see who is determining the price. We definitely have a long way to go but I think we are heading in the right direction and competition will really open up once we have that consolidated tape. [Biography] Charlotte Crosswell’s current job as president of Nasdaq OMX Europe is her second stint at the exchange group. From 2004 to 2007, she worked as head of international listings before joining Pension Corp., a London-based pension management firm, where she was partner and head of business development. Previous to those two positions, she held a number of management positions at the London Stock Exchange, including head of international business development. She started her career working in European equity sales at Goldman Sachs in 1996. ©BEST EXECUTION 2008[divider_to_top]
