New breed of trader heads for Europe

During these financial difficulties we are witnessing the upcoming of a whole new breed of traders. I am talking about a small but progressively more important group of electronic trading firms. These firms have built up a great presence in the US equities markets.

It are young firms and are mostly managed by private owners. Although they are young, they already have a global presence. For example, Getco or Global Electronic Trading Company, trades equities, foreign exchange, fixed income and commodities products on about 30 markets all over the globe. These type of firms are already good for 30-40 per cent of all equities trading volume in the US. These firms can also mean big revenues for European exchanges if they can get the firms to trade on their system. The European exchange needs this new breed of traders because the traditional customers is pulling back a lot of his capital.

But there is also competition from new platforms such as Chi-X. Marketmakers are firms that quote both a buy and a sell price in a financial instrument or commodity, hoping to make a profit on the turn or the bid/offer spread. This competition broke the exchange trading monopolies and the exchange is now also very engaged with these marketmaking firms. This attraction is mutual. The European market is very attractive for these firms because they are now able to trade on multiple platforms and arbitrage between price differences. This comes out very handy to their trading strategies.
The firms are very excited about the evolutions on the European markets. They see a change in the market structure, and this will make their processes more efficient, and this will benefit all investors in the long term. But the traditional players will always stay very crucial in the financial system. Euronext is also trying to attract these kind of firms out of the US, and in Chicago they have found a lot of potential. They are very enthusiastic about coming over to Europe. This type of liquidity provider does not trade on a particular stock, they spread their capital to post bids and offers on various exchanges. In this process they use very sophisticated technology and data analysis to trade more efficiently, make more money on the spread between the bid and offer, and they also make price discovery more efficient.

Despite the restrained outlook for the markets, the optimism over these firms has not been affected. Liquidity providers have always been very important for the entire market by improving the quality of the prices on the exchanges by lowering the bid-ask spread. Even when there is a lot of volatility, the market can always count on the firms to execute trades all day long.

This new breed of traders an liquidity providers can give a new boost to the financial sector. These firms bring a lot of advantages with them to the exchange markets. The markets can always count on these firms, because they trade all day long. It is good that there are structural changes happening on the financial markets, because during this financial crisis we need to attract the traditional customer again, because now they are all pulling back their investment. I believe that these firms can also bring more confidence on the markets, because they work on a highly professional basis with a lot of knowhow.
The fact that they are very popular in the US means that they are effective. I hope Europe succeeds in bringing these firms to our European markets. Euronext can certainly use a boost right now and when these firms are interested as well in coming over to Europe this could mean that the damage of the financial crisis could be controlled.

Source: Financial Times: New breed of trader heads for Europe
http://www.ft.com/cms/s/0/c28e8908-c1a4-11dd-831e-000077b07658.html