An interesting new study from BATS Europe examines what happened when trading on NYSE Euronext stopped for about half an hour on 13 October. It shows the extent to which MTFs have – and have not – become viable alternatives to the traditional listing exchanges.
Two observations struck me on reading the analysis.
1. When the London Stock Exchange suffered a major failure ten years ago, there was only one alternative venue for trading UK shares (Tradepoint) and when there was no trading on the LSE, there was no trading on Tradepoint either: it was entirely dependent on the LSE for price formation. Now, however, when trading stopped on NYSE Euronext, trading continued on the MTFs and prices moved in line with developments in other markets. In other words, the MTFs are now self-sufficient in the sense that they can continue trading and forming prices, even in the absence of the relevant listing exchange.
2. On the other hand, there was no notable increase in volume traded on the MTFs during the NYSE Euronext outage. The trading activity that would otherwise have taken place on NYSE Euronext did not switch to the MTFs; it simply did not take place. This suggests that the MTFs have not become a complete substitutes for the traditional exchanges.
It would be an interesting subject for further research to investigate what are the barriers that prevent MTFs becoming straight substitutes for traditional exchanges. Are these technical (eg firms are not yet connected to MTFs), institutional (eg investors are required to trade only on the national exchange) or related to information dissemination (eg investors are reluctant to trade in the absence of a price feed from the listing exchange)?