IBS Intelligence: Spotlight: Exchanges in Europe – what’s new?

June 6, 2013

The high hopes for market diversification with the introduction of MiFID and the reality are yet to meet. A lot of innovative structures emerged but disappeared quickly, and the only truly tangible result so far has been the shift from monopoly to duopoly in the European equity exchange market. Can a new entrant – Aquis Exchange – make a splash?

Although the introduction of MiFID in 2007 (IBS, April 2007, The MiFID monster awakes) was hoped to significantly boost diversification and competition in Europe’s equity exchange market, this has not materialised to date. Traditional exchanges, such as SIX Swiss, Borsa Italiana, Deutsche Børse and London Stock Exchange, continue to dominate, whilst many start-up hopefuls failed to take off (Pave in Spain is a prime example), failed to make an impact (e.g. retail trading venue, Equiduct, was on the brink of collapse this April, and managed to find new investors only at the last minute) or were simply absorbed by the incumbents (e.g. LSE’s takeover of Turquoise in 2009 and Oslo Børs’ acquisition of Burgundy in 2012). The two newcomers, Bats Europe and Chi-X Europe, had more success and joined forces to become what is now known as Bats Chi-X Europe (IBS, July 2011, M&A unrest continues in the stock exchange space), and the monopoly became a duopoly. Surely this is not the outcome MiFID’s founders have been aiming for, argues the new kid on the block, London-based Aquis Exchange.

The exchange is a brainchild of the team from Chi-X Europe that was let go when Bats Global Markets acquired it in 2011 (all of the Chi-X technology was retired as well). At the helm of Aquis is CEO Alasdair Haynes, formerly CEO of Chi-X Europe. Steve Newby, Aquis’ chief architect, and Paul Roberts, head of IT infrastructure, are also both formerly senior executives of Chi-X Europe. The new exchange’s COO is Jonathan Clelland, ex-COO of HSBC Investment Bank’s corporate finance division.

The team set about developing a brand new platform, says Belinda Keheyan, head of marketing at Aquis (she also moved from Chi-X). The new solution uses a Linux environment, with in-house built software written in C++. Aquis claims latency that is ‘significantly lower’ than that of many exchanges, high scalability of architecture and transaction capacity, and the capability of multiple simultaneous trading connections, according to Keheyan. There will be a choice of trading protocols, FIX 4.2, FIX 5 or Aquis’ proprietary protocol, Aquis Trading Protocol (binary format).

There are plans to sell the developed software to other players in the market, with Keheyan indicating that there has been a precedent for this already with an overseas exchange.

Aquis is now awaiting regulatory approval, which it anticipates to receive in Q2/3 this year. It hopes to go live in Q4. The plan is to launch from the outset as a mainstream, pan-European multilateral trading facility (MTF), says Keheyan, and operate a hybrid market with order- and quote-driven books, covering 15 countries and all types of securities. As for clearing, there will be full interoperability from the outset, she states. ‘We are doing everything to make the platform as user friendly as possible.’

A fair and all-inclusive approach to pricing will be Aquis’ key differentiator, she says. Clients will be charged according to the generated message traffic, not according to the value of each traded stock (traditionally, an exchange would charge a percentage of this value). This, she points out, will be beneficial to small companies that generate low volumes of message traffic. Keheyan says that Aquis will target traders of all sizes and types (with the exception of retail). For large-scale customers, there will be an upper band, with unlimited usage (subject to fair usage policy). Messages that relate to posted liquidity will be free of charge.