Turquoise sees Euro exchanges share drop

LONDON (Reuters) - Turquoise, a pan-European share-trading venture backed by nine investment banks, expects European exchanges to lose almost half of their market share in trading as new entrants mushroom.

Turquoise, which will launch over a three-week period between August and September, aims to take 5 percent of the market in the first three months.

"In a year's time I would think that the incumbent exchanges are on the order of 40 or 50 percent of the market, the rest of it divided among the new entrants," Chief Executive Officer Eli Lederman told the Reuters Exchanges and Trading Summit.

In the United States, which analysts refer to as the worst-case scenario for European incumbents, the New York Stock Exchange (NYX.N)NYSE.PA has seen its market share of NYSE-listed stocks fall to around 50 percent from more than 80 percent in 2005.

In Britain, alternative equity trading platform Chi-X Europe gained about 10 percent of the daily total volume of trading of FTSE blue-chips in its first year. It hopes for a 25 percent trading share of London blue chips in a year's time.

Nasdaq OMX Pan-European Market, a new trading platform to be launched in September by Nasdaq OMX Group Inc (NDAQ.O), also targets a 5 percent market share in the first year and a 20 percent share in the long run.

Turquoise, which will offer a hybrid trading facility combining a traditional transparent order book and dark liquidity pools, hopes to challenge Europe's incumbents such as the London Stock Exchange (LSE.L), Euronext (NYX.N)(NYX.PA) and the Deutsche Boerse (DB1Gn.DE) with a competitive tariff structure.

In the displayed order book, Turquoise will have a taker-maker model -- charging 0.35 basis points of the transaction amount to its customers to take liquidity, or sell shares, and rewarding 0.15 basis points for liquidity added, or buy shares, according to Lederman.

By comparison, the LSE is charging about 0.44 basis points, the Deutsche Boerse at 0.58 basis points and the Euronext at 0.66 basis points, based on a maker/taker ratio of 1:1, analysts estimate.

In the dark pool, where stock traders match large orders while concealing details about price and volume, a flat charge will be applied on both sides without a rebate.

"Feedback from prospective members and the buy side is that people are willing to pay for that service," he said.

Turquoise will rival other dark pool entrants such as NYFIX Inc's NYFX.O Euro Millennium and Project SmartPool, a joint venture of NYSE Euronext (NYX.N)(NYX.PA), HSBC (HSBA.L)(0005.HK) and BNP Paribas (BNPP.PA).

Lederman said Turquoise has been well capitalized for the launch and to turn the corner economically. But an important part of the venture's economics will depend on the dark pool business.

"We are designed to be a money-making business. That is absolutely at the core of what we want to do."

Turquoise has been on the road talking to banks, brokers and professional trading firms all over Europe for the past six weeks to prepare for its launch.

It has been working with 40 members and is on the track to have 80 members to trade 1,500 stocks across 14 European markets at launch.

The alternative trading platform will start a period of limited live trading in the second half of August, allowing members to trade in five names in each of the markets in controlled ways.

It will have a full formal launch in September, with members connecting to the displayed and non-displayed order books from their core equity infrastructure and smart order routing systems.

(For summit blog: summitnotebook.reuters.com/ )

(Additional reporting by Richard Barley, editing by Jeffrey Benkoe)