24 October 2007

Project Turquoise has persistently floundered

Project Turquoise was announced with great fanfare almost a year ago as a much-needed competitor to Europe’s stock exchanges. Its emergence sent shares in competitors, particularly those of the London Stock Exchange, into a swoon. But nearly a year on – with new rules aimed at promoting competition in European markets coming into effect next week – the project, backed by a group of heavyweight international banks, has almost nothing it can show for its efforts.

Meanwhile, a rival trading operation run by Instinet Europe, known as Chi-X, is making headway into trading the most liquid stocks in the Dutch and German markets and has announced trading in some UK stocks.

Project Turquoise was the brainchild of seven investment banks: Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, Merrill Lynch, Morgan Stanley and UBS. In addition, since formation France’s BNP Paribas and Société Générale have applied to become shareholders.

The banks, which account for at least half of all share trading in Europe and have extensive expertise in the highly competitive US trading market, ought to have an edge in taking on the established exchanges.

But the project’s difficulties in presenting a united front were illustrated a few weeks ago, when the group came close to appointing a first chief executive, filling a post that was assigned as a top priority six months earlier.

The top choice was head of European operations for a US-based information and technology group, with extensive experience in banking and capital markets.

At the last minute, according to several bankers familiar with Turquoise, one US-based investment bank fiercely objected to the appointment. Instead, the US bank proposed a senior member of its own staff.

Last week, Turquoise hinted it had put the incident behind it and said it would shortly announce both a technology provider and a chief executive.

The delays have played into the hands of established exchanges. They have raised doubts about the ability of such fierce competitors to agree among themselves on a complex project. Even those involved have doubts. “For a lot of them [the bankers] it is outside their core skills set,” says one.

However, other bankers say part of the difficulty is that the group is spoiled for choice. “The world was our oyster,” recalls one banker of the first weeks after the project was announced. More than 30 groups sought to offer technology, including some exchanges with which Turquoise intends to compete.

The provider of the exchange’s technology is expected to be Cinnober Financial Technology, created by former employees of OMX, the Nordic exchanges group. OMX had itself been on top of the shortlist of technology providers. However, in recent weeks, the Turquoise team began to doubt whether OMX could deliver all the functionality the bankers wanted.

In addition to a traditional exchange platform, Turquoise wants to offer a “dark liquidity” function for trading large blocks of shares out of public sight – where they are unlikely to have an adverse impact on prices.

One banker said Cinnober had been the favoured choice of some of the consortium from the start. It built a clearing system for off-exchange traded derivatives for Euronext that has been well received.

Plus Markets Group has signed PR Newswire as the mechanism to distribute news and information about companies quoted or listed on the Plus markets system. Plus recently received approval from the Financial Services Authority to act as a regulated investment exchange (RIE). That gave it the same rights and privileges as the London Stock Exchange, with which it aims to compete.

Companies listed on the LSE, which includes those listed on the LSE’s junior Aim market, typically use the service provided by the London exchange for the disclosure of price-sensitive information.

Companies on Plus will be able to use PR Newswire’s Disclose service to comply with the Transparency Directive, which required timely publication of price-sensitive information. Plus will cease to use its own service.

PR Newswire’s Disclose already provides similar services to more than 800 companies that are listed in the UK.

By Norma Cohen

© Financial Times