PLUS Markets Group, a UK-based market operator, has vowed to renew the sales effort for its derivatives market, including a number of senior appointments, despite failing to conduct a single trade and the departure of one of the platform’s architects.
PLUS-DX, which received approval from the UK’s Financial Services Authority (FSA) in July, will pursue new members through a revamped sales effort following the departure of Clive Connors, formerly managing director, and the rejection of a takeover bid for the derivatives market in December. Broker-dealer Vantage Capital Markets is currently the only member signed up for PLUS-DX.
PLUS’ core offering is its quote driven small- and mid-cap exchange for UK and European equities, but the firm has recently diversified into other areas, including derivatives and trading technology to grow its revenues.
PLUS-DX offers the swap index contract (SIC), which seeks to replicate US dollar interest rate swap curves via an exchange-traded product based on the FTSE medium-term interest rate swap index series (MTIRS). FTSE, the index provider owned by the London Stock Exchange, owns the intellectual property and brand for its MTIRS index family, while Connors holds the patent for the calculation of the interest rate swap index.
The different SIC indices mimic the profit and loss profiles of the underlying US dollar interest rate swap market for tenors between two and 30 years. Use of the SIC allows buy-side investors to obtain the required exposure to the IRS market directly through a single instrument, without having to buy or sell the physical swaps, a process that can be complex and cumbersome.
Speaking to theTRADEnews.com, Cyril Theret, CEO, PLUS Market Group, said the rejected bid, which was received on 9 December, indicates the future potential of PLUS-DX.
“We have always thought PLUS-DX would be transformational for us in terms of revenue,” said Theret, adding that the offer was not from a rival exchange operator.
Although Theret said he would have expected the trade on PLUS-DX by now, he said that firms were reluctant to sign up while the delayed FSA approval was still pending.
“When we were ready to go live in August, we were playing catch-up and found that our potential customers were caught up in the eurozone debt crisis,” he said. “When we were evaluating our position at the end of the year, we took the view that we would need a different skill set to attract members and trading flow compared to what we already had in place.”
PLUS has already announced the appointment of Vijay Angelo, a derivatives expert of 20 years’ standing, as a consultant to its derivatives bourse and expects to announce a further senior managerial appointment in the coming weeks.
Trading in contracts such as interest rate swaps has traditionally been dominated by inter-dealer brokers but Theret emphasises that “PLUS-DX is not about broker disintermediation”.
“We want to initially work with those banks and brokers that have existing relationships with end-users,” he added.
Using PLUS-DX, counterparties negotiate contract terms bilaterally, then report the trade to the exchange before it is cleared by Anglo-French central counterparty LCH.Clearnet. Theret said that this approach would be more attractive to prospective liquidity providers compared to a pure order book offering. Liquidity provision can be more effective in a bilateral environment where market participants request firms quotes as opposed to simply posting liquidity in an order book environment that may not be traded against.
The success of PLUS-DX and PLUS-TS, the trading technology division established by the exchange group in association with former Chi-X Europe COO Hirander Misra, will be crucial to the exchange group’s fortunes this year, with the firm looking to offset annual revenues of £3 million with its £5 million cost base.
“The activity in our core SME market business remains muted due to prevailing market conditions,” said Theret. “This makes the revenue streams from PLUS-DX and PLUS-TS critical for our business going forward.”