Equiduct: Addressing The MiFID Challenge

Equiduct only works because of the MiFID transparency challenges. Our role is to look at the major pools of liquidity—all the pan-European stocks—and to create best bid and offer across the marketplace and be able to trade at that best bid and offer or better. Without the transparency requirements it couldn't exist.

I think we're parts of all of those. We feed data in from all the major pools of liquidity. And we'll look to do that with very low latency. We've yet to pick who those providers will be, but we are in serious negotiations to see who can provide the lowest latency into us. Secondly, we are a data provider, so one of the things we're going to offer is best bid and offer, both in the local currency and in euros, for the 537 [most liquid European] stocks. And we expect most of the data providers in the marketplace to want access to that—and we have a duty to publish our prices. From a data point of view, we take a lot of data in and we have our own data going out. From a connectivity point of view, we don't intend to put screens on people's desks. That's not our business—our business is to be the eBay of shares…. Basically, we will generate our own quotes as an exchange and we'll help people publish their quotes if that's what they wish to do. We have the mandatory responsibility to provide pre- and post-trade transparency, and therefore we will offer pre-trade quote publication and trade publishing if that's what people want.

We offer a completely different model. If you look at the big exchanges, they're very siloed. They've never looked at how you go across Europe in a secondary market way. They've always looked at listing and doing it their way. That's a completely different model to what we have. Unless they're going to buy 30 different exchanges and cope with the technology challenges of integrating all of that, I think that's going to be quite a challenge…. We're not going to list in the short term, but one of the things we are looking to do is talk to some of the smaller exchanges across Europe to offer them an alternative trading platform. So one of the easy ways for the Polish, Bulgarian or Czech stock exchange to get better access to the rest of Europe might be to move to our platform…. We're not looking to be disruptive to any stock exchanges—we're aiming to be the glue that enables them to compete in a pan-European marketplace. But some of the smaller ones may find our proposition attractive in terms of cutting their own costs and giving their exchange a more pan-European feel...

If you're one of these people that thinks, "MiFID will change Europe and we need to be there," then we'll work with you to ensure that you have the lowest latency to us and back out again; just as we'll work on making sure that we have the lowest latency to all the pools of liquidity. So market data and latency are very high items on my agenda. Getting exchange feeds in is very important—the ability to turn that around into a best bid and offer, and do foreign exchange deals on the fly so I can quote in euros—and the ability to get my prices out there hopefully faster than anyone else. In an ideal world, I'd like our best bid and offer to be there at the same time that other people are seeing where the pools of liquidity are. If we pick the best of breed all the way through and other people don't pick the best of breed, then I can do that.

I think project Boat is a very interesting tier-one play. But a number of things strike you as soon as you mention nine tier-one banks. They always have their own view on how they're going to do something and are always trying to outdo one another. Its going to be difficult for them to remain focused on providing something in the centre and not have each of them trying to make their own play. Secondly, being owned by nine tier-one banks—bearing in mind most of those are American or British—and then going out to the smaller banks in Europe, makes the sales process quite complicated. Our sales force runs out of Belgium. We're a Belgium-regulated entity, we have offices in Belgium—so we're European. As a regulated exchange we have to provide pre- and post-trade transparency… So we'll be in there offering the services that Boat does, so I can't see how it will be the predominant provider—and I don't think we will be [either]. I think there will be all of us in the middle offering low-cost provision of services.

I've always stood for… "collaboration reduces costs." And it has become apparent to me that the only way you can really reduce costs is by having central services. I then came across [Equiduct] with the product set that could provide those central services, but didn't quite understand how exactly that would work. We had a long discussion, and over time it made sense that I became the CEO of that company. I was very happy with my time at Dresdner. I think it worked well, and they were very good to put my time into the middle to help the industry. But it came time when I couldn't do what I wanted to do under the Dresdner umbrella but I could do by becoming CEO of a MiFID services company.

My view of my role is to get the message out there [that] there is an alternative to "build," which is to look at buying services. The second message that I'm getting out is that clearing and settlement doesn't have to change to move liquidity around. That's all about education and publicity. I've got a lot of contacts in the City and around Europe. The other part of my role is to ensure the company follows through with its commitments to the regulators and the Belgian government to ensure that they do everything in the most transparent way possible.

It's early days. People wanted to see where this was going, what the marketing message was and who the CEO was. The response so far has been fantastic. All of the conferences I'm attending should generate enough interest level into what we're doing.

If I don't change your front-end system, and your back-end system needs no changes because it still clears and settles in the same place, then what difference does it make? There is no barrier to moving liquidity other than, "I didn't want to." And "I didn't want to" isn't something that you can tell your client. It's going to take some time: We're not going to be on everybody's love-list from day one. By the end of 2008 and the beginning of 2009, I expect MiFID to start biting. Our view is that we want to take more than our fair share of the pan-European cross-border [market] to start with, prove ourselves with that and then people might start migrating some of their other business to us because of the service we provide. It's given the other exchanges something to think about.