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Deutsche Bank queries European crossing market

EUROPE – The European crossing market, where institutional investors such as pension funds aim to trade with little market impact, has little room for development, Deutsche Bank says.

“Depending on the chosen scenario, crossing market share in 2007 will come to between 2% and 6% in the United Kingdom and 0.3% to 1% in continental Europe,” Deutsche analyst Marion Mühlberger said in a research note on alternative trading systems, or ATSs.

“However, the generally high liquidity and efficiency of European stock exchanges leave crossing systems, too, little room for development.”

The comments drew a scathing response from Alasdair Haynes, chief executive of ITG Europe, which bought crossing system E-Crossnet last year. “I can’t see where she’s getting the numbers from. I think the conclusions are unfounded.” He said he’d be happy with a six percent share of the UK market.

“In Europe, the stock exchanges have proved their ability to innovate,” the Deutsche report states. “They offer investors the main advantages of ATSs such as real-time execution and low transaction costs.

“The only ATSs with prospects (and slim at that) are the crossing systems offering special block trade facilities. But their market share will not exceed 1-2%.”

But it said that they are “the ideal forum when participants are more interested in low-cost, anonymous execution of a transaction than in the certainty and speed of execution”.

It cited a “few success stories” showing that crossing systems can attract sizeable volumes. It said: “E-Crossnet can boast 50% annual volume growth; POSIT and Liquidnet are also expanding steadily, albeit at a low level.”

ITG Europe, which operates the Posit system, bought E-Crossnet last month from a group of asset managers for an undisclosed sum. It said the deal could save pension funds “millions of pounds”.

ITG also bought the remaining 50% of Posit that it didn’t own from MSCI for an initial $90m in the same month.

Deutsche today said the prospects for alternative trading systems “are not rosy, at least not in the European equity market”.

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