In the nineties, the trading in futures on the Bund was mainly concentrated in London open outcry pit of LIFFE. Suddenly, the Deutsche Terminbörse appeared with an electronic trading platform and almost overnight captured all market share in the bundfutures mid 1997. When this happened, Willem Meijer was in the fixed income business.
Now Meijer is leading TOM, and starting next week may be a similar case of a major shift in market share. ABN AMRO will start routing all their option order flow to TOM (link, nl). Well I’m unsure of the size of ABN’s option trading flow – but this could really tilt the market in favor of TOM.
Market makers don’t really want to be active in a market where they solely trade against other market makers. Spreads could widen on Euronext, and tighten on TOM to trade against the retail investors. On the other hand, not much effort to send the same quotes to different markets.
Of course, there’s no such thing as passing through the benefits of a cheaper exchange to customers. Better execution on TOM is a fairy tale, the same market makers are sending the same prices, and markets are pretty tight – not much room for tighter margins.
Bad news for Euronext, that’s for sure. It’s a curious coincidence the options on Euronext will start trading next week, and the only interested market maker ready to provide liquidity is once again SIG (Susquehanna).