Alternative exchanges give traders an edge

Kathleen Brooks
ANOTHER shake-up of London’s trading landscape is underway after the London Stock Exchange (LSE) announced on Monday that it would sell 9 per cent of Turquoise, its European trading facility, to three investment banks. Barclays, JP Morgan Cazenove and Nomura each bought a 3 per cent stake of Turquoise for £1m.

The multiple owners of Turquoise are a good metaphor for the changing landscape of stock exchanges in the UK. The LSE’s once dominant position as the main exchange for shares listed in London has been eroded in the past couple of years by new entrants into the market, known as multilateral trading facilities (MTFs).

The LSE itself now commands 60 per cent of trading activity for FTSE 100 shares, with much of the remainder taken up by the leading MTFs – the LSE’s Turquoise, Chi-X and BATS.

IG Index, the contract for difference (CFD) provider, first made Chi-X and Turquoise available to retail investors last November, and yesterday it added BATS to its MTF portfolio. Likewise, City Index also offers its clients access to prices from MTFs along with prices from the LSE.

But what can this offer the CFD trader? Providers are acting a bit like price comparison websites, pulling together the prices available for a particular stock listed in London from all of the exchanges. Now invetsors have more choice about where to buy or sell stocks, which is benefitting the prices they can achieve.

“The main benefit for traders is price and liquidity,” says Jon Noble, director of Dealing at IG Markets. The entry of Turquoise, BATS and Chi-X have added depth to the market for London-listed shares, and the increased competition has helped to tighten spreads so that investors get the best price available for shares they wish to trade.

For example, on Monday morning investors could sell British Airways shares via IG Index for 225.5p with the LSE, or for 225.6p through a hybrid of providers, which included the LSE and also Chi-X, Turquoise and BATS.

Since the golden rule for trading is to sell high and buy low, MTFs are a good addition to the trading platform landscape, says Jon Noble, director of dealing at IG Markets: “The best price you can get is now more than likely not going to be from the primary exchanges, such as the LSE,” says Noble. “Retail traders can achieve the best price for any size of trade they choose to execute using an MTF.” This is especially true for less liquid stocks listed in London.

Having access to the prices offered by MTFs can help CFD traders to see the bigger picture of market activity, says Noble. Now that the LSE accounts for only 60 per cent of trading volume on the FTSE 100, it’s important to know the available orders from the other trading platforms. This can help “active investors to decide whether to buy or sell stocks based on whether they look supported by the market or not,” says Noble.