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1. Interview with Natan Tiefenbrun, Commercial Director, Baikal
London Stock Exchange
1. What do you see as the biggest challenges in your industry for the next 12-18 months?
Uncertainty around regulatory change is certainly a challenge, although there is potential for both
positive and negative outcomes. We would welcome changes that facilitate competition in the arguably
monopolistic environment of index derivatives trading and clearing. And of course we would like to see
changes that allow exchanges and MTFs to compete on a level playing field with OTC alternatives to
facilitate trading of large or sensitive orders without requiring inappropriate pre-trade transparency that
is a source of market impact.
2. What's your view on high-frequency trading? Do they add any value to the market?
The growth of high-frequency trading, enabled by a decline in trading and clearing costs, is a measure
of MiFID’s success in introducing competition. There is a gap between the academic studies suggesting
that HFT provides liquidity, tightens spreads and dampens volatility, thereby reducing transaction costs,
and the perception of politicians who question the “social value” of speculation. I don’t think we’ll get
any impartial answers whilst politicians blame financial markets rather than their own profligacy for the
recent government credit crisis. Hopefully the recently announced study of HFT by the UK Treasury will
provide a better understanding of their true impact/contribution.
3. With orders becoming smaller and order flow dropping, does the market really need all
of the trading venues and the liquidity they provide?
It is the customers, not the venues, that provide liquidity. Given the lower volumes and thus lower
revenues, I’m sure customers would prefer not to bear the costs of so many discrete venues (along
with their respective CCPs and CSDs). So we expect further consolidation, although regulatory
intervention might be required to prevent certain exchanges from exploiting natural monopoly they
enjoy through ownership of their CCPs and/or CSDs.
4. If you had a magic wand and could change one thing in the way markets operate now,
what would you do?
I’d eliminate the substantial barriers to competition in equity derivative trading. Exchange groups are
using intellectual property assets and the ownership of their derivative CCPs to erect barriers to
competition. The introduction of competition for trading and clearing listed derivatives, combined with
a move towards centralised trading and/or clearing of OTC derivatives will make markets more
efficient, more transparent, and more resilient to shocks.
Natan Tiefenbrun will be speaking at TradeTech Europe 2011 on 12 - 14 April, 2011.
Visit www.tradetech.com for details.