Fragmentation goes 3D: The future landscape is taking shape

Crédit Agricole Cheuvreux publishes its March Market Indicators, produced in conjunction with TAG. The future fragmentation landscape is taking shape: more trading destinations but fewer global owners (March confirmed the trend in mergers among trading venues); a broader scope of stocks and a wider range of products will be concerned by competition.
Three dimensions for fragmentation

• The tendency towards mergers was confirmed in March on a global basis. These are set to decrease the number of venue owners, and thus fragmentation in terms of ownership. However, in line with BATS and Chi-X, which have said they will keep four separate books after they merge, the number of trading destinations is not set to decrease - quite the contrary.
• NYSE Euronext is faced with two takeover bids, and although it has already twice rejected the Nasdaq OMX and ICE offer, only the future will tell which trading powerhouse will be created afterwards. Ahead of mergers, partnerships are also part of players' drive to expand. Liquidnet is one example. These different connections between exchanges would enlarge their scope of stocks.
• After increasing the number of stocks and the number of countries, derivatives are the third "dimension" for the development of fragmentation. MTFs have started to offer services in this direction.

March figures

• Trading volumes on European Local Main Indices showed a slight increase, partly because of three particular days (among them the Japanese disaster).

• Primary markets lost market share, while Turquoise generally increased its market share. To a lesser extent, Chi-X also gained market share, contrary to BATS, which was the loser this month.
• Average daily dark (mid-point type) turnover on European Local Main Indices represented 2.19% of lit turnover, less than in February. Chi-X Delta is the only destination which increased its dark turnover versus lit in March, while BATS Dark and Turquoise Dark decreased.
• Price volatility was up slightly, corresponding to a widening of spreads across all venues. The average daily number of trades increased for all destinations.