LONDON (Reuters) - Europe’s largest stock exchange is looking at opportunities to expand into fixed income, as regulators push for more transparency in this largely over-the-counter market.
Mark Hemsley, the chief operating officer of BATS Chi-X Europe, part of U.S.-based BATS Global Markets, told Reuters on Thursday that the firm was looking specifically at ways in which its trade reporting capabilities might be developed.
“Ever since we started this, we have had requests from various banks and brokers about extending this service to fixed income.”
“As we get closer to Mifid II and it becomes a requirement to report OTC transactions in fixed income, that is where there is an interest in using that service,” he said, adding that there were no firm plans as yet.
Mifid II is an update, due to come into effect in 2017, to the European Union’s securities trading rules.
BATS Chi-X Europe is the continent’s largest stock exchange by “lit” order book, where trade data is published live, and its trade reporting service BXTR has a 70 percent market share in reporting trades in European equities.
The part of this BXTR service which Hemsley sees offering the most immediate business opportunity in fixed income is the Trade Data Monitor, which involves the exchange collecting trade data, validating it, and sending it out to information vendors within specified time periods.
Hemsley said he was also not ruling out launching an electronic trading platform for bonds, but added the market for these was already becoming very saturated.
Some 23 new electronic bond trading platforms have been launched, and another eight are planned for this year.
SIX, the Swiss Exchange, is set to launch a corporate bond platform in the coming months.
“There are plenty of people out there trying to do that ... we would never say never because we have a very strong trading platform but we want to understand the market models that the participants want to utilise first.”
Some platforms encourage traditional trading between end-investors and bank dealers, while others aim to cut out the middle men and allow investors to trade directly with each other. Markets are divided as to which model, if any, will come out on top.
Turning to BATS Global Markets’ plans to acquire foreign exchange trading platform Hotspot, Hemsley expects more of the $5 trillion a day forex market to move on to exchanges.
“The recent problems in the FX market have only amplified the call for that,” he said.
“People want processes where looking at real transaction data, firm quotes in a market, is a way of establishing price, rather than just going to a single location.”
Six banks were fined a total $4.3 billion in November last year by U.S. and UK authorities for failing to prevent their FX traders sharing clients’ order information and attempting to manipulate the market.
He also said that given the losses incurred by some banks after Switzerland’s surprise scrapping of its currency cap sent the franc soaring, some banks may reduce the inventory they hold for trading, pushing more of this business onto exchanges.
Additional reporting by Alisdair Pal and Alex Chambers; Editing by Catherine Evans