Virt-X To Go Live On June 25th

Jason Gorringe, Tax-News.com, London

15 January 2001

Tradepoint announced on Friday that its re-branded virt-x pan-European electronic stock market will finally open for business on June 25th. The joint venture between Tradepoint, a consortium of leading international investment banks, and the Swiss exchange SWX (which will stop separate dealing in Swiss blue-chip equities) will list the top stocks from most of Europe’s largest bourses on a single screen, will operate with a counterparty facility provided by the London Clearing House, will offer a seamless back office with clearing through Euroclear and will have a single rulebook for all stocks regardless of listing location. The exchange will operate under UK regulatory standards.

Tradepoint said that it expects the exchange to generate annual revenues in excess of £37 million. The addition of trading in Swiss blue chips is expected to boost existing average daily volumes of about £70 million to more than £1.65 billion. Virt-x will offer full dealing services in all the main index stocks in France, German and Italy as well as the FTSE Eurotop 300, Stoxx and MCI indices which cover smaller European markets as well.

The consortium controlling Tradepoint includes Instinet, the financial markets arm of Reuters, the investment banks ABN Amro, Credit Suisse First Boston, Deutsche Bank, Dresdner Kleinwort Benson, JP Morgan, Merrill Lynch, Morgan Stanley Dean Witter and UBS Warburg, the fund manager American Century, and Archipelago, an electronic trading system. The launch of virt-x has been twice delayed, after being originally announced for 'early 2001' in mid-2000, and postponed to March, last October.

Tradepoint is a 'professional' exchange at present, and this won't immediately change when virt-x is launched. To be successful in the end, virt-x either has to accept individual investors, and compete against the already over-crowded on-line brokerage market in Europe, or it has to attract more of the existing brokerages to become members. There could be conflicts between those two goals. The 150 existing members of the tradepoint exchange are quite heavily weighted towards the UK, and include no e-brokerages as such, although some of the individual members have their own web-sites.

Virt-x will be entering the market as a significant player at an interesting moment in the development of European electronic share trading. Online brokers in Europe seem to be weathering the stock-market downturn better than their US counterparts, but this may just be a cyclical phenomenon. On-line trading came to Europe later than in the US, and it may just be that early enthusiasm is taking time to wear off..

German brokerages Consors and Comdirect both recently announced robust figures for customer and trade volumes. Comdirect says that it more than doubled its workforce to 1,600 last year. In France, the largest on-line broker e-Cortal (part of BNP Paribas) said it was still actively planning expansion, having just bought an Italian IFA, and was looking for an acquisition in the UK.

The continued growth of the European brokers contrasts sharply with the US. Ameritrade last week said it would lay off nearly 8% of its full-time work force after reporting a 12% drop in trading volume in November; J.P. Morgan Chase's private banking site, MorganOnline, said it would cut more than half of its 300 staff; while even leading discount-brokerage Charles Schwab Corp. instituted a hiring freeze. But in the UK, where the market is dominated by US brokerages, Charles Schwab said order volumes remain steady and that there were no plans for job cuts. DLJ Direct's Paul Lubbock, reported in the Wall Street Journal, said: "We're still very much in a growth phase rather than a consolidation phase."

Still, the consolidation may turn out to be among the brokerages and not their customers. At a time when 'bricks and clicks' is the favourite model for bank and brokerage operations, Ameritrade and E*Trade, whose shares both recently fell below $8, are starting to look like possible acquisitions for players who are stronger on the bricks than the clicks such as Bank of America and J P Morgan Chase.

In Britain, one of Europe's most overcrowded online share-dealing markets, the process has already started. Sharepeople, for example, was bought last month by American Express for only £30m ($45m), in spite of earlier plans for a £150m float.

So back to tradepoint: there is no shortage of resources among its powerful backers, and it can't stand still. But what does it plan? Swiss equities are interesting no doubt, and will give the exchange instant volume, but why only Swiss? Either the exchange must become the professionals' choice for index stocks and the components of the EuroTop 300, or it must expand to offer a fuller range of product from the key bourses of London, Frankfurt and Paris, and then compete on level terms with the existing e-brokerages, buying them out if necessary. That sounds expensive; and would set virt-x to compete against the current model of e-brokerage and legacy exchange, where liquidity is provided by the very banks who are tradepoint's owners. If the LSE wasn't such a prickly partner, it would be an ideal merger/acquisition target for virt-x, and the time is now, when Nasdaq is so severely wounded that it will be an enforced spectator in Europe for the next year or two. Very interesting!

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