In February this year, Aquis Exchange made dramatic changes to its execution rules in what was considered by many, a rather controversial move.
Proprietary traders were banned from using ‘aggressive’ techniques to attain execution, though could become members of the exchange if agreeing to be 100% passive.
Chief executive officer at Aquis Exchange, Alasdair Haynes, spoke with The Trade about the continuing shift following the decision and revealed the next big move for the exchange.
Hayley McDowell: What has changed since Aquis banned aggressive proprietary trading?
Alasdair Haynes: The biggest impact following the rule change is a dramatic difference in signalling and toxicity within the exchange.
You can clearly see the change in our business since February. The liquidity is larger than most of our competitors, as the absence of aggressive proprietary trading has led to the liquidity being ‘protected’ in some way.
Liquidity available on Aquis has grown substantially since February this year, and it is in fact often larger than available on Chi-X, Bats and Turquoise.
Statistics from LiquidMetrix show the average posted liquidity at the European best bid and offer in July for the German top 30 index, for example, was over €1.6 million, compared to Bats and Turquoise which posted €1.3 million and €1.1 million respectively.
The reduction in toxicity and a significantly lower signalling risk has reduced overall market impact, which is a major differentiator between Aquis’ platform any other trading platforms in Europe.
We do lose out from having no aggressive proprietary trading, but we would rather be an exchange with deeper liquidity and less toxicity.
Aquis was heavily oversubscribed for its second round of funding and it saw ‘well-known’ institutional investors back the exchange and its controversial shift.
The support from the buy- and sell-side communities surrounding the initiative has been overwhelming and we’ve witnessed a surge in onboarding and a week-by-week growth in market share.
Earlier this month, it was reported Aquis held 3% of market share of trading in the Swiss SMI20 and over 2% in the UK FTSE100.
Market share has increased for the exchange nearly three-times in just six months. As of this week, European market share stood at 1.46% after auction.
In the UK, we held 9.5% market share on Compass group, whilst in Italy it held the same proportion at Intesa Sanpaolo, and 8.5% at Ericsson in Sweden.
HM: What part did regulatory change play in this decision?
AH: This was not the original plan for the exchange but the subscription model and regulatory changes under MiFID II meant Aquis could adopt a ‘fashionable’ business model leading to substantial growth.
MiFID II regulation was behind this move, as achieving best execution is no longer about traders ‘trying their best’. Best execution is now a serious hurdle to reach, and traders recognise they will become personally responsible and accountable for achieving it.
Aquis is not an expensive exchange to join and we have serious liquidity, which will increase as more market-markers come onboard.
We believe someone not connected would find it hard to prove best execution. This all implies that certain firms are missing out on trading opportunities at the best bid and offer if they are not connected to Aquis.
The exchange also has a significant number of new members in the process of joining.
HM: What’s next for Aquis?
AH: The next shift for us is towards technology sales, and we’ve recently launched Aquis Technologies, which we created in response to the Market abuse Regulation and MiFID II.
Regulations are putting a stronger emphasis on market abuse and firms must be able to look into this.
Aquis can provide customers with surveillance, matching engines and real-time analysis tools, which are multi-asset.
Being a regulated entity means we can provide hosted solutions which are enormously appealing to customers. It’s often very expensive and firms worry about the regulatory burden.
Senior employees at large banks worry about the regulatory risk involved when operating a multilateral trading facility, but Aquis can host the entire solution.
Technology is certainly a growth area, but we do not expect the growth in market share and increase in users to slow down, and although it took a long time for Aquis to get to this stage, there is much more to come from ‘little old Aquis’.