Aggressive high frequency traders who attempt to make active trades on the Aquis Exchange are to be banned.
Changes to the company’s membership rules will take effect from Monday 8 February limiting access to the exchange to members conducting client business and proprietary traders who are trading passively.
Speaking to The Trade, Alasdair Haynes, chief executive officer of Aquis Exchange, said the move is an attempt to extinguish the type of trading “which is detrimental” to the market.
He explained: “This type of trading is high volume and builds market share, but it doesn’t show the damage that it is doing to liquidity.”
Haynes said Aquis had considered introducing a ‘speed bump’ to delay short orders from high frequency traders, but concluded that this was a better option.
The MTF boss admitted that this course of action will probably lead to a short-term drop in market share, but said he is confident that the availability of deeper liquidity longer term will result in market share of more than 2%.
He said: “I am convinced that we will see a short term decline in market share. But the ultimate gain is deeper liquidity. Buy-side firms like what we are doing, reducing market impact and trading a cheaper prices.
“We will see liquidity grow rapidly and then we will see market share growth. Once we hit 2%, other firms will have to become members.”
In a statement to market, Aquis stated that firms who wish to conduct prop trading must sign a Liquidity Provider Addendum. Members who are approved as a ‘Designated Liquidity Provider’ will only be authorised to trade passively.
The company said that it has the right to suspend memberships of those who did not follow the agreement.