Euronext to launch block trading for SME securities

SME block trading facility at Euronext will have a staggered roll out across local markets, beginning in France in the next two months, Euronext told The TRADE. 

Pan-European exchange operator Euronext has confirmed that it is months away from launching its block trading platform for small and medium-sized enterprises (SME) securities.

Falling under the exchange’s Euronext Block division which it launched in 2017, the new SME facility is aimed at smaller brokers who specialise in the trading of SME securities. 

Euronext said the facility would allow segregated markets to trade previously illiquid SME securities amongst themselves, adding that the launch was in response to a lack of mechanisms on lit order books through which SME securities could be effectively traded by smaller brokers.

“SME liquidity in Europe is underserved and underexploited,” Simon Gallagher, head of cash and derivatives at Euronext, told The TRADE.

“There has been a real lack of innovation in this market. Everyone has focused on blue chips and there has been lots of innovation and competition there which is stimulating things, but on the SME segment it has remained almost unchanged and stagnant for the last 20 years.”

Most smaller local brokers who trade in SME stocks are not aware of the large in scale (LIS) thresholds available in Europe and therefore not aware that they might qualify for block trading facilities, added Veronica Taylor, head of Euronext Block.

“We are making clients aware of these facilities that are there for them to help them trade better and find more opportunities for liquidity,” she said.

“We want to create a platform of unique liquidity that is nowhere else. We’re onboarding brokers that don’t trade on platforms, they do everything on the phone. There are deals that are potentially left on the table because they can’t find a counterparty within their existing network. We’re not talking about trying to chip away at market share. We’re trying to create liquidity organically and to create more trading opportunities for our members.” 

Under MiFID II regulation, the lowest LIS threshold that applies to SME securities is €15,000.

Based on an indication of interest (IOI) messaging model, the Euronext Block SME trading facility will act as a broker intermediated platform initially, with no direct connectivity to the end customer or institutional investors.

However, it is intended to be marketed at larger institutions once it has built up a large enough pool of brokers following its launch.

“The idea is once we have this critical mass of specialised brokers bringing us unique liquidity onto block then other firms of more international size will have no choice but to come to block because this will be the hub of this type of liquidity to connect to,” added Veronica.