TAKING Chi-X EUROPE TO THE NEXT LEVEL.

New CEO Alasdair Haynes and his team will not allow Chi-X Europe to rest on its laurels as the leading MTF (Multi-lateral Trading Facility). They are implementing a three-year plan to ensure it stays on top of the trading game.

Although Chi-X is Europe’s third biggest trading platform there is some confusion as to who owns you. Can you explain how the firm operates?

There has certainly been some confusion over the structure of Chi-X Europe. One reason may be because Chi-X Global, which is owned by Nomura, was set up to replicate the success of Chi-X Europe in other countries. However, Chi-X Global is 100% owned by Nomura and we are not. Nomura has a 34% shareholding in Chi-X Europe through Instinet Holdings and holds two of the nine board seats. As such, Chi-X Europe is managed independently and has its own governance, board and management team.

There has been some criticism that Chi-X is too reliant on high frequency traders. What is your response to that?

It is true that when some people talk about Chi-X Europe they argue that the business model cannot be sustainable because of claims that we are too reliant on high-frequency trading flow. This is simply not true. We have been operationally profitable this year, which proves that the business model is sustainable. Although we do have high-frequency traders, they account for less than half of our flow. We have a healthy mix and our liquidity flow is generated from a broad spectrum of participants including large investment banks and mid-tier brokers as well as high-frequency traders.

You came on board recently after being at ITG for several years, how do you plan to keep the momentum going at Chi-X Europe?

In many ways the experience reminds me of working at ITG in that I am working with a relatively small team and we are developing a business. There are two stages, the first of which focused on building the business and raising its profile. There were some in the market who doubted the business model at the beginning, but Chi-X Europe has proved that it is one of the post-MiFID success stories. Now we are in stage two and my ambition is to cement and build upon our liquidity and market share. There is a great deal of focus on profitability, but to me the emphasis should be on value creation and the need to continue investing. I see absolutely no reason why we cannot continue that growth and maintain our position as one of the top three European exchanges.

Will you be sticking to your strategy of low fees?

Yes, we are a low cost provider and we have no intention of raising prices. We are currently eight to ten times cheaper than the incumbent national exchanges and I think we will see other exchanges lower their trading costs. They have tiered fee structures, which award the lowest prices to the highest volume traders. The headline rate looks good, but the smaller and the mid-sized players have not really benefited from any cut in fees. That plays to our strengths because we have a very simple maker-taker fee structure. It has not changed since we started and it is not going to change any time in the near future.

What are the other planks of your strategy?

Overall, we are implementing a three-year plan with the main strategic focuses being on market data, the inclusion into indices and eventually launching derivatives on those indices. We will continue to offer Level 1 data free of charge. In some cases, historical data and other value-added data may warrant a charge, but the Level 1 data should be free of charge.  I strongly believe every trading venue should follow suit. We also plan to push for inclusion into the major European stock indices. I can see no reason why we should not be included, particularly given our market share is over 20%, and in some cases over 30%, of trading in some markets.  Our data is of the same standard as exchange data and it should be included.   The end game is to have a single platform across Europe that can provide services for cross-margining of its stocks, index products and one that eventually will become multi-asset class.

In general, the European trading landscape has changed dramatically since the introduction of MiFID, what further challenges need to be addressed?

The first stage of MiFID created competition in the execution space but now we are in stage two. One of the biggest challenges is market data, not just for us but for the industry. Overall, the cost of exchange data is still high in Europe particularly when compared with the US. European trading firms pay on average five or six times more on a value basis for their data than their US counterparts, who pay a one-time fee for all their post-trade equity market data. The exchanges derive substantial revenues from data but these are frictional costs that need to be tackled if the European market is to reach its potential. We believe it is important that Europe moves to consistent and low-cost reporting practices and a single pricing feed or consolidated tape of record that covers the different European trading platforms. We believe the regulators should introduce standards specifying when and how the industry reports.

I also think there should be more attention paid to increasing competition in the post-trade space. The market needs to look at interoperability between clearing houses amid concerns the exchanges will look to develop further their vertical silos. I think addressing these two issues will help further reduce frictional costs and help make the European market truly competitive.

Do you think the LSE’s acquisition of Turquoise will trigger a wave of consolidation?

I think consolidation is only just starting with the LSE taking over Turquoise. I am not sure how the playing field will pan out but I would anticipate that ultimately we’ll end up with three or four truly pan-European venues. I am confident though that our three-year plan ensures that we will be one of these contenders.