Turquoise to slash trading costs in price war with LSE

Turquoise, the new trading platform, is planning sweeping price cuts ahead of its launch later this month as it prepares for a vicious price war with the London Stock Exchange (LSE), Morning Wire can reveal.

The counter-attack by Turquoise, run by a consortium of nine top City banks, follows the announcement by the LSE last week of a new list of tariffs it claimed would make it the cheapest trading venue in Europe for major users.

But in an interview with Morning Wire yesterday, Eli Lederman, CEO of Turquoise, revealed that he too is working on a series of new price cuts to ensure that his service, which starts to go live on 15 August, remains competitive.

Turquoise’s price cuts are also designed to combat the explosive growth of Chi-X, whose clearing facility EMCF recently announced it would match the rates of Turquoise’s clearing partner ECCP.

That puts the onus on Chi-X to look again at our trading costs, probably before we start trading,” Lederman said. He added that he had not come to a final decision as to the exact size of the price reductions. But he insisted: “We are going to be competitive with the lowest priced-providers in Europe.”

In a surprisingly optimistic forecast of how Turquoise and other upstarts will grab huge market share from operators such as the LSE, Lederman said: “More than half of what happens on incumbent markets will be gone within 12 to 18 months and will be happening on other platforms.” He added: “There will be a price war and it will be extremely competitive.”

The average trade and settlement package on Turquoise could be as little as a fifth as expensive as on existing exchanges across Europe, he claimed. He predicted that Turquoise would be profitable by early to mid 2009, even after slashing trading charges. Lederman also said Turquoise would chase trading that does not currently happen on exchanges and could eventually move into other asset classes and regions outside Europe.

But he was unable to say when Turquoise would start trading in Spain and Italy. Its absence from those markets has been a blow to the new exchange.

Banks would not shift all their business over to Turquoise in one go, he conceded, but would gradually recognise the advantages of adopting the new platform. “People have been happy to exploit a position of dominance in this industry,” he argued, “but our integrated market will be a valuable service that doesn’t exist at the moment.”