A topic much discussed over the years has been consolidation of liquidity pools in European FI e-trading. Can the European market truly sustain more than two or, tops, three ECN’s?

Reuters entered the market late with RTFI to join TradeWeb, Bloomberg, BondVision and Market Axess as the five FI ECNs. Throughout this time the Banks have constantly said that this is not sustainable and to a lesser extent the buyside and ECNs have agreed, naturally each ECN saw them uniquely placed to survive any such consolidation.

The Banks clearly didn’t wish to distribute the same product down several channels, often to the same clients, not to mention the additional scarce IT resource needed to onboard another ECN. The buyside really want a one-stop shop to do govies, credit and now derivatives whilst the ECN’s want their competition to just go away!

Over the past months there have been a number of organisations looking to enter the space, for example Trading Screens and Creditex Q-Wixx, albeit only in the CDS space. So what has happened to consolidation?

The announcement of Thomson’s highly likely takeover of Reuters must mean that TradeWeb will soon be the offering from the combined entity as Reuters have failed to make RTFI work. Consolidation has commenced and I can see this acting as a spur to others and a barrier to the new guys.

I can’t see these new entrants truly cracking it. I believe it has become too hard to convince enough Banks to back an independent ECN in European fixed income. Quite simply there are enough already and there are not enough IT resources.

Now on to the flavour du jour…LiquidityHub, and what does “Reuters TradeWeb” mean for them?

It is widely known (actually public now, see here) in the market that LiquidityHub were not going to use TradeWeb as a vendor for their offering, preferring Bloomberg and Reuters. So what now? Can LiquidityHub and ReutersTradeWeb work together? Can LiquidityHub afford to go it alone with Bloomberg? What seemed a straight-forward run-in to get LiquidityHub up and running has become all that more complex…..

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