SEVEN of the City's biggest banks will today announce the formation of a pan-European electronic shares trading platform that would compete directly with the London Stock Exchange and other continental markets, reports the Times.
The paper says the new exchange could be up and running in early 2008, just months after the implementation of the EU’s Markets in Financial Instruments Directive (Mifid) in November next year.
The directive allows the creation of cross-border “multilateral trading facilities” among member states that adopt it. If the scheme goes ahead it will provide banks, fund managers and other institutions with a trading platform quite independent of the various national exchanges. On it, they could buy and sell electronically a wide range of leading European equities, including the components of the FTSE 350 share index in the UK. Just how many shares could be traded would depend on customer demand, but those behind the scheme insist it is not the intention to limit this to solely the most liquid stocks.
None of the participants was prepared to comment ahead of the formal launch today. But the new facility would be run as a utility and so not required to make a profit, which suggests that it would undercut fee levels on existing exchanges.
The big banks have in the past threatened to set up a rival platform, but until now nothing has come of it. The proponents of the latest scheme insist they are serious and that it is not merely an attempt to put pressure on the LSE and others to cut fees.
“It will be a pan-European trading system that sits side-by-side with existing exchanges,” insisted one party to the project. Although owned by the seven banks, it would be an independent entity and open to anyone to trade on. “For this thing to be a success, it’s going to need as many users as it can find.”
A rival to the LSE and to the exchanges in Paris, Germany, Spain, Italy and the various other countries pledged to sign up to Mifid would be welcomed by market users. Terry Smith, chief executive of Collins Stewart Tullett, which owns the stockbroker Collins Stewart, said: “It illustrates the fact that in our view the most valuable commodity you can have in setting up an electronic platform is liquidity.
“The major investment banks have that, so it’s hardly surprising that they have decided to set up their own exchange.”
The initiative comes as various exchanges, including the LSE, square up to possible takeover bids that could exert downward pressure on their tariffs if they bring with them cost savings.
Yesterday Euronext, which is trying to merge with the New York Stock Exchange, said it expected to cut its fees by 10 to 15% after the merger by combining the two IT systems.
The banks involved will only be identified today, but they are understood to include Deutsche Bank, Goldman Sachs, Citigroup and Merrill Lynch.
They will now seek a contractor to put together the electronic network. The technology is well advanced, and a number of exchanges have pioneered their own systems, which they are keen to sell elsewhere. The LSE has its Sets paperless trading platform, and the technology built up by OMX, the Stockholm exchange, is also well regarded.
THE PROSPECT OF further interest rate rises in coming months receded yesterday with official figures showing no change in the rate of inflation - defying City expectations that it would rise to its highest in 10 years, reports the Guardian.
The paper says the Office for National Statistics said consumer price inflation (CPI) remained at 2.4% for the second month running in October. City economists had forecast that a big rise in university tuition fees for new students would push it up to 2.6%.
Although the new reading represents the sixth month running that CPI has been above the government's target of 2%, it raised speculation that the Bank of England is less likely to raise rates again. Last week it lifted them for the second time in four months.
In the US, a broad hint by a Federal Reserve official of stability in US interest rates and a 1.6% drop in wholesale prices last month sparked a buying frenzy on Wall Street last night, sending shares into territory last seen six years ago.
In Britain, the ONS said a fall in petrol prices of more than 5p a litre last month had the biggest downward effect on prices and offset the rise in tuition fees. Higher tuition fees added 0.12 of a point to the CPI. This was less than most analysts had forecast, and the Bank said in August it expected the rise in fees to add a quarter-point. The sharp fall in oil prices has taken some of the heat out of price rises but the Bank's monetary policy committee is concerned that higher gas and electricity bills could feed through into increased wage deals in new year pay bargaining.
The all-items retail price index (RPI), used by most pay bargainers, was 3.7%, up from 3.6% in September, its highest level for eight years and a figure that will not be welcome in Threadneedle Street.
DEUTSCHE BORSE has dropped its €9bn (£6bn) bid for European rival Euronext in a move that leaves the German exchange strategically adrift in the race for continued stock exchange consolidation, reports the Telegraph.
It says the decision will clear the way for pan-European exchange group Euronext to merge with the New York Stock Exchange, its preferred partner.
The German stock exchange operator confimed this morning it would no longer pursue its bid and would "stop all preparatory steps including the regulation and merger control process".
"Politicians, stakeholders and regulators across Europe have confirmed their preference for a European solution. Despite this broad support, the Euronext management did not reopen talks with Deutsche Börse," it said.
"However, Deutsche Börse continues to believe that a combination of exchanges can only be successful if both sides willingly work together."
It is known that the Börse's strategy committee met in Frankfurt on Monday to discuss the situation, but it is not known what triggered the potential withdrawal. However, a key factor is thought to have been the price differential between its offer and that of the NYSE.
The Börse's offer values Euronext at €9.22bn, whereas the NYSE's offer values it at €10.5bn, based on last night's closing prices.
Until recently Deutsche Börse's pro-consolidation moves centred on a three-way merger between the German exchange, Euronext and Borsa Italiana. Chief executive Reto Francioni ended talks with the Italian exchange on 7 November.
The German exchange formally raised its intention to merge with Euronext on 19 June and has pressed ahead ever since, in spite of opposition from Euronext's board.
Last month, Francioni asked the European Commission for regulatory clearance to merge with Euronext.
Francioni was keen to tie up with Euronext because of his belief in the need for a European exchange champion, combining cash equities and derivatives exchanges, in addition to his Eurex clearing and settlements house.
He was also under pressure from several hedge funds, including London-based TCI, which is a significant shareholder in both exchanges and has been pushing for a merger since Deutsche Börse first approached the LSE with a bid in December 2004.
The German withdrawal will be seen as a victory for Euronext chief executive Jean-Francois Theodore, who was instrumental in arranging the merger with NYSE and has spent the last two years trying to ignore the advances of the Germans.
Theodore believes he has already created a European exchange champion and wants to create a transatlantic champion to compete on a global scale.IFAonline
Reasons to be cheerful
Total investment reaches £9m
Medium to long-term capital growth