25 October 2006

Euronext to develop system for banks to trade in-house - report

In the wake of the EU's Markets in Financial Instruments Directive (MiFID), pan-European exchange Euronext is looking to introduce a new system that will enable banks and brokers to trade stocks outside of its central dealing platform.

According to a Reuters report a Euronext spokesman has confirmed reports that the exchange is in talks about establishing an internal matching system.

MiFID, which comes into force in November 2007, will legalise internalisation across the 25 member states. In some countries market operators have benefited from a 'concentration rule' requiring all share orders up to a certain size to pass through the exchange, but MiFID will end this practice.

Euronext is looking into the possibility of adapting its transaction platform to enable banks and brokers to internalise trades which will enable them to fill a customer's buy or sell order in-house rather than sending it out to the exchange, says the report.

The exchange can then check where the best possible price is available - within the bank platform or its own system - and execute the trade.

Euronext's move to develop a system for banks is seen as a way of preventing banks from cutting it out all together from stock transactions, says the report.

Last month a group of nine leading investment banks have signed a letter of intent to pool their trade transparency data and create a pan-European platform for the collection and sale of trading data that will bypass those operated by exchanges.

At present, all trades must be reported to the LSE or a recognised exchange, regardless of whether an exchange's systems were used for the transaction. But under MiFID banks will no longer be required to report all trades through exchanges and will instead be able to report trades to any registered entity.

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