European service providers predict the trading and post-trade landscape is heading towards the high volume US market model after consolidation of exchange-like multilateral trading facilities (MTFs).

MTFs emerged in 2007 after the European Union (EU) markets in financial instruments directive (Mifid) was implemented to reduce trading fees and improve efficiency.

One unexpected result of Mifid is that exchange-like MTFs are increasingly merging or closing. Examples this year include the sale of Turquoise to the London Stock Exchange, an anonymous bid for Chi-X Europe and the exit of Nasdaq's pan-European MTF Neuro from the market.

"We forecast that Europe will reflect the US which has gone through similar stages," said Willem Mooijer, director of sales and client relationship management at the European Multilateral Clearing Facility (EMCF).

"Initially, there was a proliferation of MTFs in the US and then the market consolidated. We expect fewer than a handful of MTFs remaining and operating successfully in Europe," said Mooijer.

The market is still battling significant issues arising from the increased number of trading and clearing facilities, especially the additional cost of accommodating new venues.

"Clearing costs have come down dramatically on a post-trade basis but now we have to think about being connected to potentially between five and seven central counterparty clearing (CCPs) to clear the same equity trade," explained Kevin Rideout, global head of Citi's market infrastructure group. "So while the headline figure a CCP charges has gone from say 0.50p ($0.79) to 0.04p ($0.06), there are hidden costs that have to be taken into account."

Rideout said attention is on how to get post-trade costs down, particularly through interoperability. "The back-end is where I'm seeing more attention now, more than I have ever seen in a whole career in post-trade," he added.

He also expected consolidation in the market, bringing the model closer to the US. Trading volume in the US are eight times higher than in Europe despite the fact that the populations and market sizes are roughly the same, said Rideout.

Alan Cameron, head of clearing, settlement and custody, client solutions at BNP Paribas Securities Services, believed it is reasonable to expect that consolidation within MTFs should be reflected on the CCP side. "But we've been saying that since December and we actually have more CCPs. At least 10 or 11 of them clear equities and new ones are coming along," he said.

Providers on the post-trade side have experienced the double obstacle of reducing fees while dealing with the additional market participants.

"The challenge for settlement houses was to accommodate the new MTF entrants, and provide an infrastructure for them," remakred Marc Robert-Nicoud, vice-president, international markets at Clearstream. At the same time as Mifid was being introduced, Clearstream's central securities depository (CSD) business conducted a review of its fee model following market requests.

"Over the last three years, we reviewed our custody, settlement and connectivity fee models in order to generate substantial savings to our users and to increase the pricing transparency," noterd Manuel Schmit, Clearstream's head of pricing.

"Considering the additional effort that is involved in accepting settlement feeds from new players, the fact that not only were the fees not increased, but that they were reduced is a particularly interesting development," added Nicoud.

A solution would be the integration of clearing which has contributed to the success of the US market in establishing high volume and low fees by channelling nearly all business through the Depositary Trust and Clearing Corporation (DTCC).

While it might be possible to consolidate custody and settlement services by putting CSDs under one roof, Ricoud doubted there would be enough harmonisation to enable a single homogenous post-trading infrastructure for Europe.

"It would still have to provide different services for markets due to varying legal infrastructure and conditions. Harmonisation is definitely something Clearstream is in favour of, but full integration seems unlikely," he concluded.