June 15, 2018

By Philip Stafford

The debut of Aquis Exchange on London’s stock market is a reminder that not everyone sees Mifid II as a colossal drag on time, efficiency and resources.

Shares in Aquis, which operates a share trading venue, surged 38 per cent on Thursday on Aim, giving it a market capitalisation of £101m. The beneficiaries include Rich Ricci, the ex-Barclays investment banker and biggest Aquis shareholder.

Aquis hasn’t been shy in telling potential investors it expects to be a winner from Mifid II, the sprawling set of financial market reforms that European regulators introduced at the start of the year. Specifically, Aquis expects to benefit from rules designed to push more share trading on to transparent exchanges and curb banks’ appetite for trading customer orders on their own internal desks or via dark pools.

Judging from the first day share price pop, Aquis investors agree with chief executive Alasdair Haynes that the company is now well placed to compete with the London Stock Exchange, Deutsche Börse and Euronext.

Alongside the helpful regulatory backdrop, the pitch from Aquis is twofold. The first is a “pay for what you consume” trading fee structure unique to the industry. Secondly, the company argues it offers better quality trading, so investors get the best price for the deals without disturbing the market. It has banned what it calls aggressive and predatory high-speed traders.

However, the peril that comes with any major regulatory change is predicting exactly how your customers will react. What is more, success can be copied. Unlike futures markets, equities can be traded on rival venues, setting up a constant battle for market share. The earnings targets set out by house broker Liberum Capital — and based on expanding its European market share from 2 per cent to 8 per cent by 2020 — look optimistic.

Mr Haynes has already shown equity trading businesses can benefit from regulatory changes. In a neat piece of symmetry, he sold Chi-X Europe, which benefited from the original Mifid legislation, to Bats Global Markets in 2011 for $365m. Bats, which exploited the end of exchange monopolies in the US and Europe, was then sold to CBOE in 2016 for $3.2bn.

The window of opportunity to capture value from regulatory change before the market settles down may only be about three or four years. At that point, the sharp move is to head for the exit.