Since its launch in 2013, London-based trading venue Aquis Exchange had struggled to get the attention of the larger banks and market makers.
Launched as a pan-European equities trading venue, offering a subscription-based payment model, had struggled to gain market share.
That was until February of this year when Aquis took the ballsy step of banning aggressive high frequency trading.
It was a “make or break” decision for the venue, partially forced by some of the largest banks and market makers refusing to sign up, claiming that it had insufficient market share to warrant further attention.
Then, on 2 February, chief executive officer Alasdair Haynes announced that aggressive high frequency traders who attempt to make active plays on the exchange would be banned.
Haynes gave one week’s notice until the rule change would take effect. The change limited access to the exchange to those conducting ‘client business’ and proprietary traders who only trade passively.
The result has transformed the fortunes of Aquis. The very banks who refused to acknowledge the significance of the exchange previously are now queuing up to begin the induction programme.
Haynes has had to embark on a recruitment drive to handle the flood of new business enquiries. But it could have been very different.
What might have been
What we didn’t know at the time was that Haynes had discussed the future of the business with his shareholders at length, raising concerns about levels of market share and whether the commercial areas of focus should change.
He explains: “We would have had some real questions as to how we run this business. Yes, we have a successful software business, but we may have had to have changed this business.
“I don’t see that possibility happening at all now. The business will prosper from here. Businesses never die over decisions that are really binary and we always believed it would take longer than it has done.”
The fortunes of Aquis have massively changed since the announcement. The group is in the process of inducting 13 major new customers including three new market makers and 10 banks and brokers.
Haynes jokes: “That’s 13 I didn’t have six weeks ago! We’ve had to change the way we look at the sales function, look at the amount of ‘onboarding’ we are doing. It’s a radical sea change.”
While it is still early days to chart the relative success of Aquis since its HFT ban, what’s clear is that attitudes towards the venue have changed.
Neil Bond, head of trading at Ardevora Asset Management, says: “When Aquis said we are not going to let high frequency traders aggress, allowing them only to provide passive orders, that was very well received.”
The initial rush of new customers to Aquis’s doors would underscore this point, but not everyone is happy.
Haynes’ announcement annoyed some parties in the high frequency trading world who were frustrated at not being able to gain access to the platform, saying that they are legitimate liquidity providers who deserve access.
Haynes says: “We talk about HFT in one word and we [still] have HFT members who supply liquidity to us. Not all do the type of trading that we are trying to prevent. We have had to make it fair and equal to everyone.
“The definition of resilience to HFTs is slightly incorrect. We are resilient to a lot of business but there are a handful out there that are not beneficial to the industry as a whole and the market should stand up and object to it.
“We have had members come back and say we can’t find ways to become a member and we have said ‘that’s fine’. We won’t accept them. We have got to prove that we are a market that is less toxic than anywhere else. It’s like a dark pool in a lit environment.”
Some may say Haynes’ last comment is a bit of a stretch, but Aquis has shown it is able to withstand periods of volatility. The business is willing to sacrifice market share during periods of high volatility – where you might see large prop trading flows – because it is searching to be fully established as something else.
Haynes concludes: “If the benefit is greater than the current status quo, people will change. Are markets resilient to change and new ideas? Yes.”