Retail-focused UK exchange group PLUS Markets intends to break even within two years by reducing technology costs and diversifying its product range and customer base, including new ventures in the wholesale securities and derivatives markets.
Following a strategic review announced in March, PLUS aims to cut its costs by 40% to below Â£5 million in 2011, primarily by replacing incumbent IT providers such as Nasdaq OMX, whose facilities management agreement will lapse at the end of Q4 2010, with a combination of in-house technology and a range of services from Algo Technologies, the trading solutions vendor headed by ex-Chi-X Europe chief operating officer Hirander Misra, including a low-latency trading platform for the wholesale market.
In addition PLUS, which currently operates both primary and secondary equities markets as a recognised investment exchange, will roll out a range of new services including corporate bond issuance, a request-for-quote (RFQ) execution model for retail investors and PDX, the PLUS Derivatives Exchange.
“We are creating a competitive stock exchange with an attractive product offering to meet the needs of today's market users.
Within that context, we remain committed to our core franchise of helping smaller companies to raise capital and retail investor services,” said Cyril Theret, chief executive officer of PLUS Markets. A statement issued by the firm asserted that no new funding would be required for existing businesses and that existing working capital would support PLUS through to “breakeven within two years”.
From Q1 2011, PLUS expects to allow companies to issue bonds that can be subscribed to through specialist funds, following an agreement between the exchange and a third-party finance firm. As well as offering issuers an alternative form of debt funding, the new service is intended to reduce intermediation costs for retail investors.
PLUS will also introduce a new RFQ trading model for retail service providers that the exchange asserts will bring to retail investors the improvements in trade execution experienced by wholesale investors since MIFID. The RFQ model, which will be rolled out in parallel with an in-house-built quote and trade reporting facility, will support the full list of UK securities and will enable PLUS to generate revenues from retail trade execution for the first time.
Following a licencing agreement with index provider FTSE, the PLUS Derivatives Exchange will start operations with an interest rate swap product based on the FTSE MTIRS (medium-term interest rate swap) Index Series. PLUS said it believes there is “a significant opportunity” to offer a range of products that can help companies, banks and inter-dealer brokers to manage interest rate exposures more effectively.
To attract a wider range of wholesale market participants such as investment banks and high frequency traders, PLUS will launch a new lit order book during 2011 that will be built on AlgoM2, a low-latency trading platform supplied by Algo Technologies.
PLUS has entered into a heads of terms agreement with the vendor and the initiative is subject to funding of Â£10 million from potential users via a special purpose vehicle. The exchange intends the new trading platform to support multi-asset class trading, including exchange-traded products, on a pan-European basis.
In addition to AlgoM2, which has been independently verified as delivering roundtrip transaction times of 16 microseconds, Algo Technologies has been contracted by PLUS to provide its low-latency market data service, AlgoData, and AlgoSpan, a connectivity solution that will replace the existing service supplied by telecoms and technology provider BT.
According to figures from data vendor Thomson Reuters, PLUS traded 0.51% of total European liquidity during July, including 8% of the FTSE AIM 100 and 1.67% of the FTSE 100.