Difficult times for NYSE Euronext. The former monopolist recovered some percentage points in market share against BATS Chi-x, but trading volumes have declined. In the option market the serious competitor TOM is gaining speed - market share of 29% in ASML options last week (pdf). That’s a lot.
The old exchange came up with new arms to defend its market share. The Retail Matching Facility (link). Brought as a tool to give retail investors better execution in stock trades. Can’t really find the retail angle in this.
The idea is this. Market makers can quote tighter markets in stocks for retail investors only. Their bids and offers are broadcasted in the regular market, but professionals can’t trade against them.
Retail flow is nice because it has a more random character. Anyway, the best bid and offer in the market will probably be dimed with 0,1 cent on both sides. The bid-ask spread in stocks is narrow these days, at least for modest size. And retail orders are of modest size. I believe investors won’t gain much from a better execution.
Average Joe is buying 250 shares of Royal Dutch and ready to cross the spread. He may get a 0.1 cent better execution, paying 25 cent less for his transaction. He won’t even notice, his transaction fees are much higher than the spread.
Suppose our Average Joe is placing a bid for his 250 shares. He is the best bid in the market. A retail market offer comes in, but alas – the Retail Liquidity Provider gets filled on his bid, 0.001 better than Joe.
In other words, this RMF could make execution for retail investors more difficult when they are not ready to cross the bid-ask spread. Same goes for the rest of the market participants, who will notice the quality of the market will be harmed.
Second, a better execution may not be the best execution. Prices on other platforms may be better – as suggested by Equiduct ceo in FT Alphaville. A complicated, fragmented market with special corners for retail investors is the proposal.
I could be mistaken, but this doesn’t sound like a great deal for investors. Euronext doesn’t care at all about retail traders (check the transaction fees) – it’s another move to block the competition. Creating new barriers of entry or locking in the customers.