Jan 16 Pan-European trading platform Equiduct is exploring options, including possibly closing shop, four sources familiar with the situation said, as Citadel LLC and Knight Capital Group, two of its top investors, back away from efforts to build a challenger to Europe's more established bourses.
Equiduct had been looking for fresh investors for several months but came up empty in its search, one of the sources said.
Equiduct's board, which includes representatives from Citadel and Knight, met on Tuesday to discuss the matter, but ended up putting off a decision, two of the sources said.
The board plans to meet again in early February, and in the meantime will continue to look for alternatives, including finding new investors, the people said. But another person with direct knowledge of the talks said it was likely the platform would be closed.
A spokesman for Equiduct declined to comment.
Chicago-based Citadel took a majority stake in Equiduct in July 2009. Jersey City, New Jersey-based Knight took a stake in June 2010. The electronic trading firms act as market makers on the platform, which is run by Germany-based Börse Berlin, matching buy and sell orders from retail brokerages.
A key challenge for new exchanges is attracting sufficient liquidity to attract new traders. Citadel and Knight are top liquidity providers in the U.S. market. Their relationships with Equiduct gives them ready access to European retail investors.
Both Citadel and Knight also own stakes in Direct Edge, the No. 4 U.S. equities exchange.
A spokesman for Citadel and a spokeswoman for Knight declined to comment. A spokesman from Börse Berlin was not immediately available for comment.
Knight is in the process of being taken over by automated trading firm GETCO after a trading glitch nearly sank the firm in August, forcing it to re-evaluate its entire operations.
Hedge fund Citadel, which also has a market-making business, was considering pulling back from the investment as the trading platform had not gained as much traction among retail firms as had been expected, one of the sources said.
At the time Citadel announced its investment in London-based Equiduct, one of the firm's executives told Reuters he expected the trading venue to replicate the success of Citadel's investment in Direct Edge over the following few years.
Direct Edge and BATS Global Markets expanded quickly in U.S. equity trading in the 2000's, sparking a price war that reduced the cost of trading U.S. stocks, and cut into the market shares of NYSE Euronext and Nasdaq OMX Group.
The number of trades on Equiduct rose by 10 percent in 2012 over 2011, with the value of trades increasing 7 percent to 36 billion euros ($48.12 billion), the trading venue said last week.
That bucked the trend of a combined 21 percent decline in trading across Europe on all exchanges, but it was still just a sliver of the overall market. Month-to-date, Equiduct has a pan-European market share of 0.73 percent, according to Thomson Reuters data.
Competition among multilateral trading facilities (MTFs) has been fierce in recent years since pan-European regulation opened the market to competition in 2007.
A lack of funds led to the closing of Spain's Plataforma Alternativa de Valores Espanoles in February, while Nasdaq OMX Group shuttered a pan-European MTF it operated, called Neuro, in April 2010 as the business failed to gain enough market share.