Skip to main content
MENU
Subscribe
  • Sign Up Free
  • LOGIN
  • Subscribe
  • Topics
    • Alternatives
    • Consultants
    • Coronavirus
    • Courts
    • Defined Contribution
    • ESG
    • ETFs
    • Face to Face
    • Hedge Funds
    • Industry Voices
    • Investing
    • Money Management
    • Opinion
    • Partner Content
    • Pension Funds
    • Private Equity
    • Real Estate
    • Russia-Ukraine War
    • SECURE 2.0
    • Special Reports
    • White Papers
  • Rankings & Awards
    • 1,000 Largest Retirement Plans
    • Top-Performing Managers
    • Largest Money Managers
    • DC Money Managers
    • DC Record Keepers
    • Largest Hedge Fund Managers
    • World's Largest Retirement Funds
    • Best Places to Work in Money Management
    • Excellence & Innovation Awards
    • WPS Innovation Awards
    • Eddy Awards
  • ETFs
    • Latest ETF News
    • Fund Screener
    • Education Center
    • Equities
    • Fixed Income
    • Commodities
    • Actively Managed
    • Alternatives
    • ESG Rated
  • ESG
    • Latest ESG News
    • The Institutional Investor’s Guide to ESG Investing
    • ESG Sustainability - Gaining Momentum
    • Climate Change: The Inescapable Opportunity
    • Impact Investing
    • 2022 ESG Investing Conference
    • ESG Rated ETFs
  • Defined Contribution
    • Latest DC News
    • DC Money Manager Rankings
    • DC Record Keeper Rankings
    • Innovations in DC
    • Trends in DC: Focus on Retirement Income
    • 2022 Defined Contribution East Conference
    • 2022 DC Investment Lineup Conference
  • Searches & Hires
    • Latest Searches & Hires News
    • Searches & Hires Database
    • RFPs
  • Performance Data
    • P&I Research Center
    • Earnings Tracker
    • Endowment Returns Tracker
    • Corporate Pension Contribution Tracker
    • Pension Fund Returns Tracker
    • Pension Risk Transfer Database
    • Future of Investments Research Series
    • Charts & Infographics
    • Polls
  • Careers
  • Events
    • View All Conferences
    • View All Webinars
    • 2023 Defined Contribution East
    • 2023 ESG Investing
Breadcrumb
  1. Home
  2. TRADING
March 21, 2016 01:00 AM

Institutions could get hit with higher costs because of LSE battle

Rick Baert
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print
    Ryan Larson believes it's false to assume there's a trend toward market consolidation.

    The acquisition of London Stock Exchange Group PLC by Deutsche Bourse AG — and the expected bidding war for LSE Group that's expected to include Intercontinental Exchange Inc. and CME Group — is expected to have little impact on institutional trading, although there is the possibility of higher trading costs as fewer market operators run lit equity exchanges.

    London Stock Exchange Group and Deutsche Bourse on March 16 announced they would combine in a “merger of equals,” to be based in London. Atlanta-based ICE is expected to make a counteroffer, as is CME Group, Chicago.

    A potential cost increase in equity trading is probably the only negative for institutional investors from whichever firm ends up buying LSE Group.

    “If more lit markets were operated by fewer parents, with fewer "parents' in the game, they may ultimately have even more pricing power over data feeds, hence higher potential costs for everyone, assuming those costs get passed on in the ecosystem,” said Ryan Larson, head of U.S. equity trading at RBC Global Asset Management (U.S.) Inc., Chicago.

    Kevin McPartland, principal, market structure and technology at Greenwich Associates, Stamford, Conn., agreed that there's a possibility for higher trading costs but also said he thinks that scenario is unlikely.

    “With fewer exchange operators in the world, the more pricing power each one would have,” Mr. McPartland said. “I don't think that would necessarily be the case; CME, ICE, Deutsche Bourse would all continue to operate in competition with each other. But the possibility would be there with fewer operators.”

    The potential acquisition of LSE Group is not guaranteed, said Joseph Saluzzi, partner, co-founder and co-head of equity trading at Themis Trading LLC, Chatham, N.J. If an acquisition does happen, he thinks trading costs won't increase — in fact, they could conceivably go down.

    “The explicit costs that exchanges charge would likely remain the same,” Mr. Saluzzi said. “The maker-taker model has pretty much standardized these rates across the exchanges. Implicit costs are also not likely to change since there would be no aggregation of liquidity.”

    Mr. Saluzzi said that if the number of venues were drastically reduced, liquidity would be focused on a limited number of exchanges “and costs would come down since it would be easier to access without having to deal with the noise of high-frequency trading.”

    The deal would reduce the number of equity market operators, but it would do nothing to stem the proliferation of equity market venues that has led to concerns about a fragmented stock market structure, sources said.

    The issue of equity market fragmentation isn't about the number of venues, Greenwich's Mr. McPartland said. It's about the fragmentation of liquidity, which won't change no matter which exchange operator ends up with LSE Group.

    “There's been consolidation (among exchange operators) for years,” Mr. McPartland said. “Now you're left with just a handful running many, many markets. It's proof that the exchange business is a profitable business if those businesses have scale.”

    RBC's Mr. Larson warned that any deal for LSE wouldn't signal a reduction in the number of trading venues because past venue operator mergers, such as the 2014 acquisition of Direct Edge by BATS Global Markets Inc., haven't cut the number of equity markets.

    Mr. Larson warned not to assume that “just because LSE is up for sale it means the trend among lit markets is to consolidate. BATS/DirectEdge was a classic example of why that is not the case, as they left all four legacy exchanges to operate. As exchanges are owned and operated by for-profit entities, at least domestically speaking, I fear that decisions far too often are made along the lines of what is in the best interest of the unitholder, for example, the shareholder, as opposed to what is in the best interest of fair, transparent, liquid and competitive markets.”

    Added Mr. Saluzzi: “In the U.S., I doubt you will see any mergers of the big three (ICE, Nasdaq and BATS) due to antitrust concerns. And even if the exchanges did manage to get approval to merge, this still wouldn't help fragmentation since they likely wouldn't shut down any of their exchanges. ... Exchange business models thrive on fragmentation — the more of them you own, the more data feeds, co-location space, ports, etc., that you can sell.” n

    Related Articles
    Intercontinental Exchange considering bid for London Stock Exchange
    London Stock Exchange to merge with Deutsche Bourse
    CME Group chooses executive to replace retiring CEO
    Recommended for You
    ONLINE_190309873_AR_0_IRPBLAZENBEB.jpg
    House approves LIBOR transition bill within spending package
    John Pucciarelli
    It's near zero hour to meet new margin rules
    TP ICAP partners with Fidelity unit for cryptoassets trading
    TP ICAP partners with Fidelity unit for cryptoassets trading
    The Institutional Investor's Guide to ESG Investing
    Sponsored Content: The Institutional Investor's Guide to ESG Investing

    Reader Poll

    January 25, 2023
    SEE MORE POLLS >
    Sponsored
    White Papers
    Show Me the Income: Discovering plan sponsor and participant preferences for cr…
    Morningstar Indexes' Annual ESG Risk/Return Analysis
    The Future of Infrastructure: Building a Better Tomorrow
    Outlook 2023: Opportunity in a volatile world
    Research for Institutional Money Management
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today
    December 12, 2022 page one

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    130 E. Randolph St.
    Suite 3200
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2023. Crain Communications, Inc. All Rights Reserved.
    • Topics
      • Alternatives
      • Consultants
      • Coronavirus
      • Courts
      • Defined Contribution
      • ESG
      • ETFs
      • Face to Face
      • Hedge Funds
      • Industry Voices
      • Investing
      • Money Management
      • Opinion
      • Partner Content
      • Pension Funds
      • Private Equity
      • Real Estate
      • Russia-Ukraine War
      • SECURE 2.0
      • Special Reports
      • White Papers
    • Rankings & Awards
      • 1,000 Largest Retirement Plans
      • Top-Performing Managers
      • Largest Money Managers
      • DC Money Managers
      • DC Record Keepers
      • Largest Hedge Fund Managers
      • World's Largest Retirement Funds
      • Best Places to Work in Money Management
      • Excellence & Innovation Awards
      • WPS Innovation Awards
      • Eddy Awards
    • ETFs
      • Latest ETF News
      • Fund Screener
      • Education Center
      • Equities
      • Fixed Income
      • Commodities
      • Actively Managed
      • Alternatives
      • ESG Rated
    • ESG
      • Latest ESG News
      • The Institutional Investor’s Guide to ESG Investing
      • ESG Sustainability - Gaining Momentum
      • Climate Change: The Inescapable Opportunity
      • Impact Investing
      • 2022 ESG Investing Conference
      • ESG Rated ETFs
    • Defined Contribution
      • Latest DC News
      • DC Money Manager Rankings
      • DC Record Keeper Rankings
      • Innovations in DC
      • Trends in DC: Focus on Retirement Income
      • 2022 Defined Contribution East Conference
      • 2022 DC Investment Lineup Conference
    • Searches & Hires
      • Latest Searches & Hires News
      • Searches & Hires Database
      • RFPs
    • Performance Data
      • P&I Research Center
      • Earnings Tracker
      • Endowment Returns Tracker
      • Corporate Pension Contribution Tracker
      • Pension Fund Returns Tracker
      • Pension Risk Transfer Database
      • Future of Investments Research Series
      • Charts & Infographics
      • Polls
    • Careers
    • Events
      • View All Conferences
      • View All Webinars
      • 2023 Defined Contribution East
      • 2023 ESG Investing