In '97-98 Eurex cut prices and wiped out LIFFE in Bunds. However, Eurex had already built up decent order flow (largely from German banks) and was about as equal as LIFFE. LIFFE stupidly didn't match the price cuts. The market then tipped to Eurex and by June 98 it had taken virtually the entire market from LIFFE.
In 2002 (?) USFE (backed by Eurex) tried to do to CBOT in bonds/notes what Luttnik is trying to do with STIRs. It claimed it had commitments from big firms, and it undercut CBOT fees. It gave volumen incentives to big firms. But unlike LIFFE, CBOT immediately responded to the price cuts and basically charged zero to trade. USFE never got any traction. USFE didn't have any liquidity base like Eurex did in Bunds.
My takeaway--cutting prices doesn't work if you are starting from zero liquidity wise. It is unlikely to work even if you have some order flow because the incumbent can match you and will still get the business because of liquidity advantage. Further, the "commitments" and "support" of big firms are extremely soft. They like to prop up an entrant in order to put some competitive pressure on the incumbent for a while, but they are not going to move enough order flow away from the incumbent to eliminate its liquidity advantage.
Some thoughts on the Biden proposal: Taxes and the Total State
https://chicagoboyz.net/archives/70912.html
In '97-98 Eurex cut prices and wiped out LIFFE in Bunds. However, Eurex had already built up decent order flow (largely from German banks) and was about as equal as LIFFE. LIFFE stupidly didn't match the price cuts. The market then tipped to Eurex and by June 98 it had taken virtually the entire market from LIFFE.
In 2002 (?) USFE (backed by Eurex) tried to do to CBOT in bonds/notes what Luttnik is trying to do with STIRs. It claimed it had commitments from big firms, and it undercut CBOT fees. It gave volumen incentives to big firms. But unlike LIFFE, CBOT immediately responded to the price cuts and basically charged zero to trade. USFE never got any traction. USFE didn't have any liquidity base like Eurex did in Bunds.
My takeaway--cutting prices doesn't work if you are starting from zero liquidity wise. It is unlikely to work even if you have some order flow because the incumbent can match you and will still get the business because of liquidity advantage. Further, the "commitments" and "support" of big firms are extremely soft. They like to prop up an entrant in order to put some competitive pressure on the incumbent for a while, but they are not going to move enough order flow away from the incumbent to eliminate its liquidity advantage.