Aquis Exchange relaxes eight-year ban on proprietary trading firms

Exchange is set to allow access for more aggressive proprietary trading firms, but member firms will be able to opt out of interacting with them should they wish to do so.

Aquis Exchange has relaxed its ban on proprietary or non-client firms on its UK and EU trading platforms, allowing them to interact with members that have opted in to trade against them.  

The relaxation which was communicated to clients on Tuesday before market open, is set to come into effect in October, subject to regulatory non-objection. The decision follows member demand for more choice around interacting with non-client proprietary trading firms, Aquis said in a statement.

This is a relaxation of the rule as opposed to a removal. Member firms will be able to retain control over whether they are interacting with this type of liquidity by opting out should they wish to do so.

Speaking to The TRADE, Aquis chief executive officer Alasdair Haynes said a relaxation of the ban with the option to opt in and out would offer liquidity providers more choice and would improve the exchange’s immediacy of execution.

“Liquidity providers are key to the market. Through this they get the choice to decide who they want to trade against. The technology allows members to decide if they want to interact with more aggressive flow. Those who are worried can opt out. It’s harmony amongst market makers,” he said.

“The issue with the current rule is that we are reducing opportunities for companies. Non-client [proprietary trading] has grown to become significant and we have slower time to execution because we don’t have that flow. It might be toxic, but people want that immediacy. Banks themselves have always said that the reason they supply less is that they want immediacy and we didn’t provide that.”

Aquis moved to ban prop trading firms – sometimes referred to as high frequency trading (HFTs) – from accessing its markets in 2015, claiming that their more aggressive type of trading was detrimental to the market and damaging to liquidity.

“Being able to resolve this issue of toxicity has differentiated us. There’s no one else I know that’s been able to action the tech that we have to give people the choice,” added Haynes. “We’re not going back on what it used to be. But in times low institutional volumes all markets suffer and we’re not sitting on our laurels. Reducing toxicity still remains important to us – we don’t think it’ll drastically change that. It gives more people the opportunity to trade.”

Haynes confirmed he expected the move to boost Aquis’ market share in the medium term, but short term it will be a complex implementation process. Liquidity providers will need to code up to the new technology to ensure the right flags are in place to show what is tradable liquidity and what is not to certain firms. The exchange said in a statement that the October implementation date would allow members and data providers to adapt to the change.

Aquis has significantly diversified its business over the last few years, expanding its dark pool, Aquis Matching Pool (AMP), and closing auction, Market at Close (MaC). Most recently the exchange launched dark to lit sweep orders on its dark pool.

“Our business has grown significantly over the last few years across the Matching Pool and MaC. It’s time to reflect on what we originally did in 2015,” said Haynes.

Haynes confirmed that following market research, the business was not expecting a negative response from members to the changes, adding that he was confident a large number of proprietary trading firms would be participating come October.