The Trade: Liquidity, not structure, key for Europe’s new alternative venues

April 18, 2013

Adequate liquidity provision will be reign as the central issue for the growing number of new European equity venues, senior buy- and sell-side participants agreed at a panel discussion yesterday.

Three emerging equities venues present at the event – MarketBourse, Aquis Exchange and Squawker – all have differentiated structures and fees, but will face tough competition despite being welcomed by buy- and sell-side firms.

For the buy-side, represented by David Miller, senior dealer at Invesco Perpetual, and Neil Smith, senior equity dealer at State Street Global Advisors, the issue of liquidity remains far from easy to solve.

While not being direct participants in the venues, buy-siders Miller and Smith welcomed the opportunity to direct their brokers to interact with ‘custom’ liquidity suited to their specific requirements and preferences under the structures put forward by both Squawker and MarketBourse.

Meanwhile Ben Springett, head of electronic trading, Europe for agency-broker Instinet, said like most brokers confronted with declining commission rates and relatively low volumes, his firm would welcome the subscription pricing model offered as an industry revolution by Alasdair Haynes, CEO, Aquis Exchange. Taking a lead from other industries such as media and telecoms, Haynes postulated that subscription pricing would lead inexorably to more trading and hence narrower spreads and better execution for the benefit of all; an old argument perhaps, but still a good one in the current climate in the industry.

Choose your partners

Rather than focusing on price to grow liquidity, both Squawker and MarketBourse are betting that buy-side clients, nervous about information leakage and toxic liquidity, will back models that allow them to decide what kind of counterparties they want to trade with and instruct their brokers accordingly.

According to Christopher Gregory, CEO, Squawker, the new platform has 36 members live and a further 45 in the on-boarding process. Squawker facilitates ‘private anonymous conversations’ with qualified counterparties and uses FIX indications of interest to automate the process of identifying possible matches. “Matching counterparties rather than orders” was the way Gregory summed up Squawker’s USP.

This may sound more like a dating website than an organised trading facility, but the buy-side panellists were definitely supportive of the ideas and sentiments underlying it.

Meanwhile, Tony Mackay, CEO, MarketBourse, saw his company as an “exchange between broker dark pools”. The idea once again is to allow buy-side clients and their sell-side brokers to pick and choose the kind of counterparties that see their potential orders. Market Bourse is not as far forward in terms of implementation as Squawker, but again both buy-side and sell-side saw value in its proposition.