Targeting retail brokerage firms that want to engage in cross-border trading, Stockholm, Sweden-based OM Group and Morgan Stanley Dean Witter have teamed up to launch a new online European stock exchange. Dubbed Jiway, the exchangewhich will be headquartered in London and is scheduled to launch in Septemberwill trade roughly 6,000 U.S. and European stocks. The exchange plans to license its trading engine and clearing system from OM Technology, OM Groups trading systems arm.
Access to Jiway will initially be made available to brokers in the U.K., Sweden and Germany. Next year, Jiway plans to expand its reach to brokers in France, Switzerland, Italy and Holland.
Collectively, OM, which will own 60% of the exchange, and Morgan Stanleywhich will own 40%have already committed $100 million to Jiway. Though the co-owners do not currently need any additional funding for Jiway, they are open to selling off minority interests in the exchange to other partners, says Arun Kumar, vice president of Morgan Stanleys institutional equities division in Europe.
Jiway has not yet signed up any clients to participate in the exchange, but Kumar says that the firm has already received inquiries from brokers based in London and Stockholm. Moreover, he says the exchange has fielded calls from several firms that want to participate as Jiway market makers.Firms that sign on as market makers at the exchange will provide liquidity, says Kumar, by guaranteeing that clients orders get executed. Kumar explains that if a client places a buy or sell order for a stock, and there are no takers, one of Jiways market makers will execute against that order.
Currently, Morgan Stanley is Jiways lone market maker. But Kumar expects other market makers to sign on soon, and those firms will compete head-on for orders with Morgan Stanley.Though Jiway will receive its order flow from brokerage firms, its ultimate end-users will be the individual investor clients of those brokers. Today, says Kumar, it is prohibitively expensive for retail investors to perform cross-border trades through European brokers.
That said, there are at least two European exchanges that offer cross-border trading. One of those exchanges is Easdaq, a pan-European stock market that primarily covers technology stocks with high growth potential. Separate from Easdaq, last summer, eight equity marketsled by the Frankfurt Stock Exchange and London Stock Exchangesigned a pact to form a single pan-European market for trading blue-chip stocks.