MTFs (multilateral trading facilities) entering the UK to compete against the London Stock Exchange are exposing themselves to an extremely tight and competitive market, according to Simon Brickles, CEO of UK stock exchange PLUS Markets.
Speaking an event hosted by The Financial Services Club at Lloyd’s of London on Monday evening, Brickles pointed out that all of the new entrants are focusing on trading liquid, large-cap stocks.
“Sometimes, when I look at that space, it looks like the scramble for Africa in the 1900s,” Brickles commented. “People believe that the trading, like the land in Africa, is going to be unlimited and it’s going to go on forever. It won’t go on forever and it is a very crowded market space.”
He points out that several new players have already started or are planning to start trading UK large-cap stocks. These include BATS Trading, Chi-X, Equiduct, Nasdaq OMX and Turquoise. “They are all looking at how you trade the large securities, how you shave milliseconds from the trading,” said Brickles. “That is not our primary focus or our market space.”
PLUS Markets, a recognised investment exchange (RIE) under MiFID, focuses on listing and trading small- to mid-cap stocks and competes with the London Stock Exchange’s Alternative Investment Market (AIM). Brickles argued that in this market segment, PLUS is competing only with the LSE.
The exchange has succeeded in wresting a large amount of market share from the LSE already. In January, for example, it captured 50% of all UK retail trades for the first time since its launch. On the same date, the LSE only had a 47% market share. And the majority of the trading in more than 600 small- and mid-cap firms taken place on PLUS.
And he is convinced PLUS will continue to grab market share in the UK as it adds new features to its trading platform. “We are attracting liquidity already and expect our trading system will become even more compelling over the coming months as we launch a dark order pool, not as an interactive board with our market-making system but as a parallel board, so that market makers can offset their long and short positions and can be encouraged to keep their spreads tighter,” he said.
He also believes that PLUS will be able to attract more liquidity once it is able to trade all AIM securities. It expects to be granted that right soon. “As soon as we get the approval from the FSA, the liquidity will transfer almost overnight,” he said. “PLUS Markets will dominate the trading in the small- and mid-cap area of the London market.”
He added, “The wider electronic connectivity, the dark order pool, and having the bulk of liquidity in small and mid cap is going to suck in more market makers, and wider electronic connectivity is going to attract different types of market makers and liquidity providers.”
Brickles thinks the combination of PLUS’s success so far and the entry of the MTFs is having a big impact on the LSE’s market share in the UK.
“The LSE has lost more than a third of the London market. This isn’t a monopoly that’s going to change in the future, this is a dominant position that is crumbling before our eyes,” he says. “This is before we’ve seen Turquoise and Nasdaq launch, and before we have got the right to compete on a level playing field. If we have the right to trade all AIM securities, we’ll get even more share. Give the other markets a chance and they’ll be eroding that monopolistic position even more too.”