Building Blocks For Competition

Competition in the block-crossing industry is heating up. New research from TowerGroup indicates that the next three years will see the New York Stock Exchange and Nasdaq attempt to win back block order flow from independent crossing network providers, and they may very well succeed.

Nasdaq has created the Open/Close crossing system and will be rolling out an intraday crossing system at the end of the first quarter of 2006. The NYSE also is looking to regain market share with the advent of its Hybrid market, which was advanced by last year's acquisition of Archipelago.

Smaller, independent crossing network providers, such as Liquidnet and Pipeline, are going to be challenged to stay in the game, according to TowerGroup. A pricing war is on the horizon, with the exchanges open to lowering execution costs, and smaller providers and new players struggling to match their deep pockets, TowerGroup reports, noting that execution costs are just a small portion of the bottom line for exchanges, whereas for crossing network providers, those costs are the bottom line in its entirety. The exchanges also have enormous amounts of liquidity on their side, leaving the future of independent block crossing networks looking dim, TowerGroup says. <<<