Mostly… fixed income and cross product eTrading

February 19, 2007

Just One Cornetto — A Single Super-Exchange

Filed under: 2015, etrading — holky @ 8:29 pm

There’s a school of thought that the mifid-triggered fragmentation of liquidity pools is actually only a stepping stone towards the end game of one super-exchange.    

With increasing visibility of the dark pools of liquidity (such as the private off-exchange crossing networks which Tabb Group suggest now account for some 10% of all US equity dealing volume here) , and increasingly buyside ability to consolidate many different pools of liquidity into a single virtual pool accessible from their desktop (with tools such as this), why would buyside want to go back to a single physical pool? 

The ongoing price war on costs should drive venue costs down to the bare minimum, after which all there is to differentiate your choice of liquidity pool is reliability and any value-add functionality (stp and beyond).  

So who is going to be best positioned for this? – the exchanges with their history of doing this for a living, or the strategic alliances who have the luxury of being able to architect their technology from scratch now?    

Perhaps the answer should actually come down to who wants it the most.  We know the exchanges want to stay in the picture. I reckon there is a pricing point that will cause those in the strategic alliances to decide that they don’t want to run that type of business just for the sake of it, meaning the answer to whether there is ever a super-exchange or not will depend on the wannabe super-exchange having the pockets deep enough to get down to that price.



  1. There’s one other differentiating factor – physical location. Especially with automated trading becoming more common, the advantage of being only 5ms away from the exchange rather than 200ms (in terms of the time it takes your signal to reach the exchange) will be huge. Lightspeed arbitrage will be a real factor. So wherever this super-exchange is, that’s where the traders will have to be – and the fiction of a virtual exchange operating “seamlessly” across several continents will be impossible to sustain.

    Comment by Alexander Campbell — February 20, 2007 @ 9:46 am

  2. The industry requires a utility for liquidity, not another stock exchange. In addition, a hub for all other exchanges, and various markets.

    Go to

    Comment by Robert Brown — February 20, 2007 @ 3:37 pm

  3. I think the speed thing depends initially on whether you are a “trader” or an “investor”. Of course the boundaries between the two may blur a bit over time as everyone explores all avenues to squeeze out more alpha where they can.

    Comment by holky — February 20, 2007 @ 9:02 pm

  4. Holky, do you see this Super-Exchange trading not only Equities but FI & FX (inclusive of the related derivatives – futures, options, swaps, CDS etc)?

    In other words a Super Cross-Asset Exchange or SCAE for short.

    Another issue regarding location, beyond latency, is bregulation. Fine to have a European Super Exchange or even a North American one….but you’d require political agreement etc, etc. Could be tough sell even within the EU.

    Comment by waratah — February 22, 2007 @ 1:14 pm

  5. […] here in WSJ) which caught my eye as being a single exchange for the whole world, something many in the real world expect at some point.  This SL one supposedly works the same way and uses same terminology as real life […]

    Pingback by Your Second Life « Mostly… — June 1, 2007 @ 7:49 pm

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