Aquis sees annual net revenue grow by 42% despite market share drop

Exchange services provider attributed a market share loss in H2 last year to market volatility, the shift to dark trading and a change in strategy of one designated liquidity provider.

Aquis saw its net revenue reach £16.2 million last year according to its 2021 financial results, representing a growth of 42% on the year prior.

The exchange operator attributed this to its exchange revenues, which rose by 26% to £9.8 million driven by increased activity levels and the addition of new members, and data revenues which reached £2.3 million, up 159% from the year prior. Licensing revenues also reached £4.4 million, up 90% from the year prior, while Aquis profit before tax rose by 540% from 2020 to £3.2 million.

The only smudge on its all but glowing financial report was a loss in market share seen the second half of the year which dropped 6% from Q2 to Q4. Aquis attributed this to increased market volatility, the industry-wide shift to dark trading venues and a change in strategy of one designated liquidity provider.

“The only blot on the horizon is the decline in market share but I think it’s very explainable. All revenue streams are making profess given a backdrop that isn’t perfect for Aquis. High volatility doesn’t suit us. When VIX goes up our market share goes down,” Aquis chief Alasdair Haynes, told the TRADE. “During this period, our market share was low but our volumes were high. So even though market share fell it didn’t have an impact on revenue because we’re charging on the basis of messages.”

Aquis confirmed earlier this month that it would be absorbing the business activities of dark order book, UBS MTF, to accommodate the industry shift to dark trading in light of relaxing regulations in the UK post-Brexit. The deal is expected to close in early Q2.

“There has been a shift towards dark trading, more than we predicted. When we founded Aquis, I made the mistake of saying we want to be in the lit book and that because we’ve got these special rules it makes us different – it does – but you’ve got to offer the entire tool kit to your customers,” adds Haynes. “Otherwise you become vulnerable is there’s a shift and you can’t accommodate it. The UBS MTF deal fills the gap perfectly.”

Haynes confirmed that Aquis has been working on the technology to ensure a seamless transfer of UBS’ MTF flow for several months and that it was not taking any people as part of the deal. The exchange intends to maintain the MTF’s revenues and market share with plans to extend its service into Europe by the end of this year.

Looking to the future, Haynes noted that while both market volatility and the changing social-political and macro climate due to conflict in Ukraine were having significant impacts on the markets, he did not expect these to last forever. He identified companies in the £20-60 million range as the “sweet spot” for Aquis post-Brexit.

The exchange services provider also identified market data as a key contributor to Group results and as a “key pillar to its strategic plan” in its 2021 results, particularly in light of the now very likely implementation of a consolidated tape in the UK and Europe. It attributed its significant growth in market data revenues – which reached £2.3 million in 2021 – to its harmonisation of its data services across its businesses.

“We want to make sure we provide the same data experience as national exchanges. We don’t charge for data. Having said that we’ve seen significant growth in data as we’ve built our primary and secondary business,” he said.

“The harmonisation to have one contract for those products means that if we get a handful of companies that grow significantly, that is unique data and its incredibly valuable. If we see a consolidated tape that could be a very serious revenue stream.”

When asked if he would ever introduce fees for data, Haynes said never say never, however, reiterated his love for the subscription model.

“I love the subscription model and what it offers. I am passionate about subscriptions changing human behaviour. It’s changed the way people operate, by including data and having connectivity and offering a marginal cost of zero it has an enormous appeal. Not only for institutional market but the retail market too.”