June 27, 2011 – By Luke Jeffs
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LONDON (Reuters) - The London Stock Exchange <LSE.L> has launched a super-fast trading service in its latest bid to court more business from high-frequency trading (HFT) firms.
The British exchange, which has seen its share of British equity trading eroded by faster rivals in the past three years, said on Monday it had launched a sponsored access service aimed at providing HFT with the fastest links to its order books.
Sponsored access enables trading firms that want to avoid the expense of being an exchange member to fire orders directly to the exchange through a member, an arrangement that ensures faster access to prices, which is key for some traders.
The LSE service offers HFTs fast access to its main British order book Sets and the LSE's pan-European system Turquoise, the exchange said.
The launch was the latest move by the exchange group to attract more business from HFTs, which have grown rapidly in the past few years and now account for as much as a half of trading on Europe's largest exchanges.
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In February, the LSE completed a project to switch Turquoise and Sets to the faster Millennium trading platform, a move to make the LSE more competitive with fast rivals such as Chi-X Europe and Bats Europe.
Chi-X and Bats have won market share from the LSE and the other European exchanges partly by securing the backing of HFTs acting as market-makers who then drew in more traditional trading firms such as investment banks and fund managers.
But HFTs have been criticized for making markets more volatile, a fact borne out by U.S. regulators partly blaming HFTS for the 'flash crash' in May 2010 when U.S. shares plunged 600 points in just a few minutes before bouncing back.
The sponsored access launch came with the LSE facing a pivotal week in its 200-year history as its shareholders and those of Canadian market TMX <X.TO> prepare to vote on the planned $3.6 billion merger between the exchanges on Thursday.
The proposed TMX deal was LSE chief executive Xavier Rolet's first major foray into the mergers and acquisitions market, and its success was seen by analysts as crucial to ensure the British exchange did not become a takeover target itself.
(Reporting by Luke Jeffs; Editing by Dan Lalor)