SIX is exploring the creation of a three-pronged listing venue that spans the UK, Europe and Switzerland, chief executive Bjørn Sibbern has told The TRADE.
Following the completion of its Aquis acquisition, which was originally announced in November, SIX will have listing and trading venues situated in mainland Europe, the UK and Switzerland.
The result could mean a unique opportunity for the exchange operator to create a three-pronged fully pan-European trading venue, the first of its kind to come to market within the region.
“Thinking long term, we have the opportunity to think about building a pan-European venue with three legs to stand on,” Bjørn Sibbern, chief executive officer of SIX Group, tells The TRADE.
“Subject to the closing of the acquisition of Aquis, we will be the only exchange with listing venues in Switzerland, EU and the UK, and that creates a unique opportunity. We have two other listing venues that work well so we need to see how we want to develop that.”
Aquis-ition
The exchange group confirmed its plans to acquire Aquis in November last year, a deal which remains subject to closing conditions and regulatory approvals. The Swiss exchange group has agreed to acquire the entire issued and to be issued ordinary share capital of Aquis at a price of 727 pence per share, valuing the entire issued and to be issued share capital of Aquis at approximately £207 million (based on Treasury stock methodology).
Read more – SIX agrees to acquire Aquis Exchange
Speaking on the drivers behind the deal, Sibbern explains that the Aquis acquisition was a natural fit with complimentary offerings to those already in play at SIX.
“Aquis has a pan-European trading offering with more than five percentage market share. They’ve been the most successful MTF in the last couple of years in terms of growth,” he says.
“They run on their own technology – a technology we use in Asia for a joint venture we have on crypto derivatives called Asia Next. They have a small listing offering and then also have a data offering. It’s a great match to what we have at SIX. We want to keep the brand we want to keep the management team and we want to keep business model – including competing with ourselves.”
Among its many product expansions announced in the last year, Aquis confirmed plans to launch a new VWAP crossing service in the UK and Europe in December. The new offering will use conditional indication of interests (IOIs) and use a VWAP period of five minutes. Members will be able to submit IOIs at a volume weighted price using all the major reference markets for that calculation.
While UK endevours for the offering have continued as usual, plans for the product in Europe were brought to a standstill at the end of last year thanks to a last-minute rule change by EU watchdogs.
Featured in its final report on equity transparency, published in December, the European Securities Markets Authority (ESMA) added an additional line to its text surrounding the specific characteristics of negotiated transactions, preventing exchanges from using the negotiated waiver model on their own behalf.
However, a recent consultation released by the European Commission suggests it could be exploring reversing this decision.
Read more – European Commission exploring US-style order protection rule among other market reforms
When asked about the group’s future plans for either Aquis’ potential VWAP crossing offering or its own one, Sibbern confirms that nothing is being ruled out.
“From the SIX point of view, we look at many of these types of different functionality,” he explains. “We have been one of the exchange innovators around midpoint matching […] and this [VWAP cross] is also one of the things that we’re looking at.”
The future European venue landscape
Something that Sibbern is keeping tabs on – like many that sit in similar seats to his – is the continued decline of lit volumes in Europe. Lit markets now account for just under 30% of volumes in Europe, the lowest they have ever been.
Institutions’ increasing appetite for alternatives to the incumbent exchanges have continued to drive innovation in the European trading venue landscape including the launch of new trading mechanisms and the growth of dark trading.
SIX itself has a successful dark trading business both in Switzerland and Spain and Sibbern reaffirms the exchange’s stance that dark trading will continue to play a central role in the market.
The danger, he notes, is when market’s reach a point where the fractional portion of volumes taking place on exchange set the reference price for all other trading mechanisms.
“While Mifid II didn’t achieve its original goal of moving more volume onto lit venues, the reality is that we’ve seen volume proliferate across alternative trading venues, as institutional investors demand increasing choice over where and how they execute,” he says.
“If you see more flow go to SIs, OTC, private rooms that will just diminish the price sitting on the exchanges which is important because everybody uses that as the reference price.”
The venue landscape much like most corners of the financial markets is constantly evolving as the needs of those operating within them also shift. While not currently allowed under regulation in the UK and Europe, ‘private’ or ‘hosted’ rooms have continued to come up during industry discussion in recent months as the explosion of the concept in the US piques the interest of investors in Europe.
“We will see private rooms in some shape and form in Europe. I don’t think it would be as big as US but it’s too early to conclude,” adds Sibbern. “It’s something we’re mindful of and something we’re looking at. It’s not an offering we have in place but something we have to monitor of course.”
Another US-led innovation also occupying airtime in Europe and the UK currently is the concept of 24-hour equities trading. While a handful of technology providers have offered out of hours trading for several years now, the decision by several incumbent exchanges – namely NYSE, Nasdaq and Cboe – to begin exploring implementing an extension of trading hours suggests the theme is becoming mainstream in the US.
Read more – Cboe to launch 24-hour US equities trading
Europe, however, seems to tell a different story. A few years ago, European participants were petitioning for the shortening of market hours. As US venues apply to regulators for the lengthening of their trading day, their European peers have shown little to no sign of following suit.
“I do not see any strong customer demand for expanding the opening hours,” says Sibbern. “In Europe, it will probably be a case of wait and see what the development is in the US. Where it’s different is for structured products where you see customers wanting to also trade in the evening.”