By Anthony W. Haddad
The recently formed NASDAQ OMX Group has its sights set on Europe—the big players, anyway. This month, the transatlantic exchange will launch the NASDAQ OMX Europe, a market for the high-performance trading of European blue chips. What does this market offer that Europe needs? Chris Concannon, head of transaction services for NASDAQ OMX, explains.
EM: What is your professional background?
Concannon: Prior to NASDAQ, I was at Instinet when they acquired an electronic communication network called Island ECN. And prior to that, I was at a law firm practicing U.S. securities law. I was an attorney at the SEC for three years.
EM: So you’re a lawyer?
Concannon: A reformed lawyer.
EM: What is NASDAQ OMX Europe?
Concannon: We’re looking at Europe and seeing a dramatic opportunity, partly because of MIFID and the changes taking place throughout the European community and the sweeping technology that’s being deployed throughout Europe and the world. We see a phenomenal opportunity to build a new market in Europe that trades all European stocks. We have a strong foothold in the Nordic region, but we see an opportunity to grow trading activity across Europe. So we’ve launched an effort to build what’s called a multilateral trading facility, and it will be registered through the Financial Services Authority in the U.K. We’ll be trading the top 300 equities throughout Europe.
EM: Why the focus on the top 300?
Concannon: Those are the most liquid products and certainly the products that most firms and investors trade. And the opportunity to gain market share in Europe is by deploying fast and efficient market technology. Speed and cost are critical. So we’re trying to lower the cost of trading in Europe for the most liquid instruments.
EM: And is this complementary or in competition with current European exchanges?
Concannon: Both. It’s designed to compete, not only against our exchange but also against all the primary exchanges in Europe. It will also complement our exchange because it’s another service offering that can attract new clients to trade on our exchange and trade on the primary markets in the Nordic region.
EM: Why did NASDAQ OMX decide to do this?
Concannon: Technology is a critical element of the strategy. The regulatory changes that we see provide an opportunity. We have what we think is the premiere technology in the exchange space. It’s been wildly successful here in the U.S., where we have vibrant competition among markets. We view this as a perfect storm in which we can have a great advantage.
EM: We saw that NASDAQ recently captured the largest share of trading in NYSE-listed securities for the first time. What’s the significance of this, and what does it mean for U.S. exchanges?
Concannon: From a historical standpoint, it’s truly dramatic. You have a 200-year-old exchange that has refused to change and join the technology age when everyone else around the globe had joined five and 10 years ago. When they finally joined, they used this hybrid model with the floor and electronic trading together. Given the history of the loss of market share, you can’t look back and say that’s been a success. We were able to win by simply competing with all the advantages that we bring to the table, and we won market share consistently every month until we were finally larger than the NYSE.
EM: When do you expect regulatory approval for NASDAQ OMX Europe?
Concannon: We’ve announced our target date for its launch in September. Regulatory approval would have to come before that, and we feel very good about our discussions with the FSA. We don’t comment about those discussions, but there’s nothing right now that indicates that our launch date will be delayed.
EM: How does NASDAQ OMX Europe fit into NASDAQ’s overall plan?
Concannon: The broader strategy of NASDAQ OMX Europe is to power markets throughout the globe using our technology expertise. We can do that as part of NASDAQ OMX, which we do in the U.S. and in the Nordic regions, as well as in London soon. But it’s also for other enterprises to use our technology to power those markets. We see phenomenal synergies in delivering a single platform around the globe to trade any and all products whether we own that market or we license our technology through that market. The cost savings we’ve developed can also be delivered to the other markets around the globe.
EM: Why London?
Concannon: If you look at the large trading houses in Europe, there’s been a consolidation of trading decision and trading technology into London. A lot of activity comes out of London and touches all of Europe. That’s why we’re in London, and that’s really been the driving reason behind launching the MTF in London.
EM: What will this look like in five years?
Concannon: In five years, Europe will of course have gone through a lot of transitions. I think you’ll see a number of large exchanges trading European stocks and no one dominant exchange in any product. You’ll likely have market niches where exchanges trade certain products better than other exchanges. The real question for Europe in five years will be about what the clearing landscape looks like.
Today, you have central securities depositories siloed by countries that provide final settlement and custodial services of all securities listed in that country. That adds substantial cost to European trading and cross-border trading. How Europe solves the custodial and settlement costs will be critical in the next five years. I would expect that there will be some consolidation of clearance and settlement services in Europe. And that’s already begun with some consolidation among the central securities depositories.
EM: How does NASDAQ OMX Europe fit into that picture?
Concannon: We intend to grow our market in London organically. It’s always cheaper to grow than to buy. We feel pretty excited about the opportunity today on the clearance and settlement side. We plan to have a voice in how solutions are delivered on the clearance and settlement side of European trading that will benefit the end-user, lowering the costs of trading as a result of lowering the cost of the settlement in Europe.
EM: Is there anything else you’d like to tell our readers about NASDAQ OMX Europe?
Concannon: We’re excited about launching this new market in a time of great change. We’ve been even more excited by the feedback that we’re getting from the customer base in London. They’re excited to have us in the market. They’re reflecting that excitement by getting connected and testing on our platform. There’s been great momentum and great excitement around this project, and we’re looking forward to its launch.
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