UK exchange operator PLUS Markets has launched an “in-depth” strategic review of its business, which may include a shift to electronic trading, after making a loss of £8.3 million for the year ended 31 December 2009.
PLUS, which was granted recognised investment exchange (RIE) status under MiFID in 2007, specialises in listing and retail trading of small- and mid-cap equities on its quote-driven platform – the PLUS-quoted market. The platform is PLUS’s core offering, accounting for 68.85% of revenues.
The exchange has yet to turn a full-year profit since becoming an RIE, having made a £10.2 million loss in 2008 and a £3 million loss in 2007.
“We are conducting an in-depth strategic review of our operations to ensure alignment of revenues and costs. We are also seeking to capitalise on the value of our RIE licence,” said Cyril Theret, PLUS’s new CEO, in a statement.
Theret, previously PLUS’s business development director, took the helm from previous CEO Simon Brickles in February amid a management reshuffle that also saw Giles Vardey replace Stephen Hazell-Smith as PLUS’s chairman. Brickles is now vice chairman of the group, focusing on PLUS’s international activities.
According to PLUS, the difficult financial conditions in 2009 dampened the appetite for initial public offerings, and the PLUS-quoted market suffered a small decline in issuers for the first time, which hit the bourse’s revenues.
At the end of 2009, PLUS had 179 companies admitted to trading, down from 214 at the end of 2008. During 2009, 52 issuers left the market, compared with 38 in 2008, and there were only 24 new admissions, compared to 40 in 2008.
In addition, the exchange is starting to feel the pinch of trading venue competition introduced by MiFID in 2007. In addition to the London Stock Exchange and PLUS, there are now six displayed multilateral trading facilities trading FTSE 250 stocks.
“It is clear that the environment in which PLUS operates has become highly competitive and consolidation amongst execution venues has already started to take place,” said Vardey in a statement.
As a result, PLUS’s board has concluded that the firm needs to apply the right level of resources to protect the quoted market. Vardey said the firm needs to consider the right intermediation model to underpin the growing flow of private investor transactions that are reported to PLUS. During 2009, 8.6 million trades representing 83.2 billion shares were reported to PLUS, up from 5.1 million trades and 26.1 billion shares in 2008. The value of reported trades increased to £52.8 billion from £36.4 billion in 2008.
However, PLUS reported that trading activity in PLUS-quoted securities remained quiet in 2009. As a result, the firm is seeking to increase the number of market makers and private client brokers on the platform. Two new retail service providers – Citadel Investment Group and Knight Capital Europe – joined PLUS in 2009.
PLUS also intends to evaluate the development of electronic execution as part of its trading offering, and is seeking to activate its core primary market “in a more powerful way”, said Vardey.
In addition, PLUS plans to diversify its revenue streams. In September 2009, a group of investors from the Gulf Cooperation Council (GCC) countries bought a 19% stake in PLUS for £5.5 million via a special-purpose vehicle, Amara Dhari Investments. Following this, PLUS intends to extent its trading and listing offering to the GCC region.
PLUS accounted for 1.09% of UK equities trading turnover in February 2010, according to figures from data vendor Thomson Reuters. This figure includes off-order-book trades reported to venues, of which PLUS had a 9.85% market share.