Aquis Plans Tech Transformation at NEX Exchange

Aquis Exchange plans to shift newly acquired NEX Exchange onto its own technology.

“We will not be taking their technology,” says Aquis Exchange CEO Alasdair Haynes. “We will be implementing our own technology solution. This is why we can quite dramatically reduce the costs immediately.”

London-based Aquis announced on July 5 that it had purchased NEX Exchange from CME Group for a £1 consideration, plus £2.7 million ($3.36 million) based on NEX Exchange’s current working capital levels. The deal is still pending regulatory approval, but Haynes says he expects it to close in the third quarter.

“We will have to operate on their technology for a period of time, but as soon as we possibly can, we will be getting customers to move over to use our technology,” he adds. 

Haynes notes that NEX Exchange currently operates a quote-driven trading model, but says he wants to introduce a hybrid model.

Aquis, which was launched in 2013, runs its own technology arm that provides matching engine, surveillance, market operations and data services. The acquisition involves only the exchange business—NEX’s technology arm will remain with CME.

CME bought NEX last year. It had been expected to sell the small-cap exchange to Oliver Hemsley, former CEO of Numis Securities, but the deal fell through in March. 

Herbie Skeete, managing director at Mondo Visione, says the sale isn’t a surprise as CME, which owns large futures and options exchanges, has always been more interested in assets that are in sync with its own businesses, such as TriOptima, which offers post-trade services in the derivatives market.

Aquis says it bought NEX Exchange because it is one of only four equities-focused Recognised Investment Exchanges (RIEs) in the UK. An RIE license confers special exemptions that allow exchanges to skirt regulations and offer certain services.

Aquis currently lacks a license to list stocks, meaning it can only trade stocks listed on other exchanges. With the NEX acquisition, however, it gains that license.

Applying for coveted RIE status can be a costly and years-long process, says Aquis’ Haynes.

“It is an extremely high threshold to reach; it can cost a lot of money,” he says. “If we want to speed up our objective of becoming the leading exchange services group, when this opportunity arose, we thought it was a perfect time to do this. The London Stock Exchange [LSE] has the RIE status, and that is what allows them to have the listing. It is why they have in effect become almost like the monopoly for listings.”

Pan-European Growth Ambitions

Haynes says Aquis can give NEX Exchange the technology, the innovation and the model to succeed in taking on giants such as the LSE.   

He says the exchange has bigger ambitions than just taking on the Alternative Investment Market (AIM), a sub-market of the LSE.

“This is not about trying to do AIM cheaply. It is not about listing fees—it is about changing the model and giving people something that is better for the end-investor, better for the company that is issuing, and that allows companies to grow in a substantial way.”

Mondo Visione’s Skeete notes that Haynes is a former CEO of Chi-X Europe credited with turning it into the largest equities exchange in the region. Chi-X was acquired in 2011 by Bats Global Markets, which is now part of Cboe.

This is not about trying to do AIM cheaply. It is not about listing fees—it is about changing the model

Alasdair Haynes, Aquis Exchange

“Alasdair Haynes has a track record of success,” Skeete says. “He was the guy who got Chi-X Europe to go from a small exchange to an exchange that challenged the LSE and all the other pan-European exchanges. He has the market knowledge, the market contacts and the pizzazz, with NEX now part of Aquis, to offer quite a challenge in this space. He knows the challenges that companies face. It’s not just a question of the cost of listing, it is also all the other things, like the lack of research for small-cap companies. He is well aware of that.”  

Aquis employs a subscription pricing model based on message count, rather than commission on the value traded. Skeete says this was a novel approach when the exchange launched in 2013. 

Matt Simon, a senior analyst at Aite Group, says Aquis’ pan-European approach could be appealing to companies that might not want to trade on a “nationalistic exchange” in the current political landscape of Brexit and Mifid II. In January, Aquis gained approval from regulators in France to operate a multilateral trading facility. 

“It is not an easy thing, though,” Simon says. “They have their challenges ahead of them. The regulatory framework makes it a little bit easier for competitors if they have the right technology to compete, but it is not a done deal that they are going to all of a sudden capture a ton of market share.”