Aquis has reported strong results for the first six months of 2023, with net revenue up 17% to GBP9.7m and profit before tax up 64% to GBP1.1m, and all four divisions profitable despite the challenging market conditions. But Alasdair Haynes believes that there are even brighter horizons ahead. We sat down with the Aquis CEO to discuss the fruition of former plans – and his big ambitions for the future.
It’s been a busy year for Aquis, with highlights including the launch of 24×7 market-grade matching engine Aquis Equinox in April, the addition of its Dark to Lit Sweep in June, and a move into block trading with the acquisition of a minority stake in US start-up OptimX in August. But there’s more to come. With a potential retail platform on the horizon, and the surprise relaxation of its previous ban on prop flow earlier this month expected to boost market share, the firm has big plans for the future.
The recent news looks to be paying off for its shareholders as well. The share price, albeit down around -11% over the past six months and -21% year-on-year, rose 0.83% on the news this morning, and has gained a healthy 3.02% over the past month – a promising uptick after a challenging year.
“We’ve achieved market expectations in what could be described as some of the worst economic conditions – and worst trading conditions – that we’ve seen in a very long time,” said Haynes. “It’s nice to be bucking the trend.”
With the prop flow rule change announced in September, the firm is expecting to see a “significant increase” in market share over the medium-term. Add in a recent upgrade, an extension, and another Aquis Technologies contract, and revenue expectations for the second half are looking good.
Big in blocks
Aquis Markets, the group’s pan-European secondary trading equities market, now offers over 2,100 stocks and ETFs across 16 markets, with a “significant proportion” of activity now taking place on AQEU, its French MTF for EU markets. Average market share was 5.1% for the first half (up slightly on 5% the previous year).
With lower lit market volumes down due to the challenging market conditions, dark pool activity is on the rise and Aquis is working to channel that momentum, with the introduction of its new Dark to Lit order sweep functionality in June. It has also seen growth in its Auction on Demand (AoD) product, along with “pleasing” levels of activity in the Aquis Matching Pool following its acquisition of the UBS MTF in April 2022, leading to a 14% uptick in revenues for the division.
Now, the group plans to add block trading to the mix through its recent acquisition of a minority stake in OptimX Markets which will allow its clients to cross large blocks, while it also expects the prop flow rule change to boost volumes.
“The OptimX Markets investment covers an area we simply haven’t got right now,” explained Haynes. “Our markets revenue is up because we’ve diversified the business – we’re getting income stream from the Market at Close product, from the matching pool – and now we need to look at how we get into block trading, for which I have high expectations. OptimX is a way to do that via professionals who really know what they’re doing – and of course, they’ll be doing it on Aquis, which is doubly good for us.”
With established incumbents such as Liquidnet, Turquoise and Cboe already dominating the space, it might be a steep hill to climb, but Haynes is confident that the investment will pay off. “This is an area where we simply weren’t accessing the total addressable market,” he explained. “In the past, because of the trading rule, we were never going to have access to the whole market. What the rule change has done is open Aquis up to 100% of that. My job has been to make sure that we can expand our business and increase our market share by gaining access to areas that we haven’t had in the past.”
Data-driven
Aquis Data is one of the group’s best-performing divisions this year, with revenues up 34% to GBP1.8m and a strong contract pipeline. The division currently has 85 market data customers and is seeing growth in both terminal use and non-display licenses. “Obviously as we get more recognition for our stock exchange, more people want that data.”
The planned creation of a European consolidated tape would boost revenues yet further, with Haynes pointing out that Aquis would “disproportionately benefit” from a tape because it’s one of the few exchanges that does not charge its members for data. “The consolidated tape disproportionately advantages Aquis because you don’t charge for it, you get a rebate for your revenue – and therefore members would in effect be paying us via the tape, which would mean a significant increase in revenue for us. It would be a material gain.”
“Members would in effect be paying us via the tape, which would mean a significant increase in revenue for us. It would be a material gain.”
With a tape looking to be on the cards probably for 2025, the only question remains who will win the tender for its provision – and while 14 European exchanges have thrown their hat in the ring vie the EuroCTP consortium, Aquis plans to sit on the fence a while longer. “It’s a little ironic that many of these exchanges didn’t actually want a consolidated tape in the first place,” he pointed out. “So for them to become the CTP that actually establishes price does worry me a bit. I think there will be other consortiums, and we’re going to leave our options very open as to how we might approach that.”
With the UK also looking to set up its own consolidated tape – with recent confirmation of just one tape per asset class and consultations happening right now, there are likely to be more RFP processes and more opportunity. “We’re looking two years ahead but it’s not a question of it a tape happens, it’s when – and that is really important for us because it materially impacts our P&L.”
Tech expansion
On the Aquis Technologies side, the group has seen a sea change in recent times. “If you asked me two years ago, I’d have said our product was good – it was cutting edge,” said Haynes.
“But the launch of Equinox, our perpetual matching engine, has been a game-changer. Today we are literally talking to governments and national exchanges about the provision of technology. I can’t say whether we’ll win all the contracts or not, but we’re in the game – in fact, we’re getting inbound calls, which we never used to. That tells me that we’re starting to get recognised as a serious technology provider – not just for start-ups who might be looking for economic benefits, but for really big players. That’s ground-breaking.”
While Aquis is first and foremost an exchange business, its perpetual matching engine has capabilities which have the potential to reach far beyond financial services. “We’re investigating those opportunities,” revealed Haynes. “Our focus now is on people who have a global business or a start-up business and who might want to enter new markets. It could be tokenisation, it could be different types of bonds – there are all sorts of things out there, and we have the capability.”
Primary markets
It’s not all sunshine and rainbows. The challenges facing the primary listings market in the UK and Europe have been well-documented and Aquis has not escaped unscathed, with just five new listings in the first half of 2023 compared to 22 over the course of 2022. The grop admitted :tough market conditions and low admissions throughout the market,” but noted that issuer revenue still increased 29% for Aquis Stock Exchange.
“I think that our focus, unlike the national exchanges, is really about getting scale-up capital to growth businesses. That’s an area in which I think this country really fails on, and I think the public markets are ideal for that,” said Haynes. “These companies at these stages need appropriateness and proportionality in their rules and regulations, in a way that they don’t get from competitive exchanges today, which are very much designed for the big player.
“Things are designed in a historical way and that has to change. We want entrepreneurs to focus on being entrepreneurs – that doesn’t mean lowering standards, but it means bringing proportionality to their business so that they can focus on growing their company. We want to give people a clear vision of how they can progress through the markets. People want ease of execution, they want appropriateness of trading mechanisms, and I think that’s why we’re doing well. Five listings is nowhere near enough, of course – but on the other hand, in these difficult conditions its actually pretty good.”
Focus on the future
So what next for Aquis? “Well, we have to get this proprietary rule change right,” said Haynes. “That’s going to bring huge upside for us in the medium-term, but it’s not going to happen overnight.” With customer testing going live in the next few weeks, the group expects the change to go live at the end of the quarter.
Beyond that, Haynes is also excited about cloud technology, while Aquis is also exploring options in distributed ledger technology – and working on a retail proposition that could launch as early as 2024. “Retail is important for us, and we have some ideas that we’ll be announcing over the next month or so,” he revealed. “We need to get the public back into public markets, and I don’t think they’re getting a good deal today. They are working in a very old-fashioned marketplace, and I think we can change the way that operates.
“We call ourselves the next generation exchange, and we want to transform the way that markets operate. Right now we’re working on 30-year old principles, in a monopolistic environment, and that is not the way forward. Tomorrow’s markets are all about digitalisation, fragmentation, fractionalisation. We want to design a business for the future.”
©Markets Media Europe 2023
