The recently announced initiative by Euronext ("Negotiated Order Flow") where retail orders will go through the systems of Euronext, but are traded outside the central order book, is both good and bad news.Let’s start with the good news. Finally Euronext also acknowledges that the costs of trading retail orders are too high. It is difficult to ignore the fact that almost 40% of their business is lost to alternative exchanges. This new initiative can indeed save transaction costs for retail brokers and that is the good news.
The bad news however, is that this new initiative is similar to off-exchange trading. In other words ‘dark pools’ which are rightly criticized by many others. Until recently, Euronext was one of the biggest opponents of these ‘dark pools’ claiming that everything traded outside of the central order book is bad for the price discovery and subsequently bad for the market. Why the change of heart? Regardless of the reasons, this is not good for the market.
Click here to download the paper from TOM (The Order Machine) explaining the consequences of Euronext’ Negotiated Order Flow.