One year ago the Swiss stock exchange (SWX) launched virt-x, a London-based electronic exchange for European blue chip stocks.
The trading platform is the product of a merger between the blue chip segment of the Swiss stock exchange - which owns 39 per cent of virt-x - and the British electronic trading platform, Tradepoint.
virt-x was set up as an exchange platform to trade the top 600 European stocks with the aim of facilitating the business dealings of investment bankers - who have long complained that fragmented European equity trading keeps their costs too high.
But the electronic exchange has fallen short of a self-imposed target of trading ten per cent of European blue chips by the end of its first year.
Seven per cent of European blue chips are currently traded at the exchange and almost all of these - 95 per cent - are shares in Swiss companies, for which virt-x is the main market.
The company said it expected to report a small pre and post-tax profit when it announces its results for the six months to June 30, 2002.
But Andrew Hilton, the director of a UK-based think tank which has conducted research on virt-x, said the company would need to consider a future merger in order to survive.
"Unless there is a sudden and completely unexpected recovery in stock prices and a big increase in trading volumes, then the best exit strategy for virt-x is probably to find a merger partner," said Hilton.
"That might be the way that virt-x gets itself out of the hole its in at the present time," he added.
Rumours persist that virt-x is looking for a merger partner: Another electronic exchange, Euronext - itself the product of a merger between the exchanges in Amsterdam, Brussels and Paris - is considered to be a likely partner, as are the Frankfurt and London stock exchanges.
Settlement of transactions
virt-x allows for the automatic clearing and settlement of transactions when trades are executed, a fact which its backers claim can save companies up to €100 (SFr 147) per trade.
But lower transaction costs do not seem to be enough to persuade traders - eager to find the lowest prices that flash up on their computer screen - to use the platform.
"People don't really believe they are getting the best share prices from virt-x - they believe that the spreads behind buying and selling prices are wider than with other exchanges," Hilton told swissinfo.
The electronic exchange is struggling to expand its trading base beyond the 27 Swiss stocks traded on it. For the nine months ending December 2001, the company reported losses of SFr9 million ($6 million).
Although virt-x has some of the lowest transaction costs in the business, it lacks the volume to offer the lower equity prices offered by such home exchanges as the London Stock Exchange.
"virt-x has had to deal in a very difficult market. Trading volumes have been low in Europe, stock prices have been weak. This is clearly not a great environment for trying to develop a new trading platform," Hilton said.
by Karin Kamp