Price war looms for European exchanges

European exchanges had best get ready for another round of fierce price cutting following the announcement by the US-based Bats ECN that it is to set up an operation in London.

The Bats ECN launched in the US two years ago and now claims an 8-10% market share in US equities. Much of its success stemmed from an agressive pricing plan introduced in January 2007, in which the ECN basically paid for liquidity. The New year promotion lost the company $0.001 for every trade executed, at an estimated cost of $6 million over the month.

The steep price cuts helped Bats set a new daily volume record and claim nine per cent of Nasdaq-listed volume on the first day of trading in the New Year.

Bats will be joining a host of new competitors to Europe's established incumbents when it opens for business later this year, all of whom are promising faster trading and lower prices for investors. 

No wonder the LSE's share price shed 51p on the news.