Aquis Exchange is amending its rules to allow high-frequency traders to use its trading venue.
Chief executive Alasdair Haynes said the change to Aquis’s market structure was made in response to client demand.
“Liquidity providers were saying it was taking too long to execute orders because [Aquis] didn't have the aggressive flow for proprietary trading firms,” he told Financial News.
High-frequency trading is otherwise known as non-client proprietary trading in official parlance.
The multilateral trading facility that Aquis runs has banned high-frequency traders from using the MTF since 2015, to reduce signalling risks and market impact of liquidity providers trading against one another.
“When we didn’t have many clients we had market makers trading against market makers and it became a zero-sum game. It created toxicity in the market,” said Haynes.
However, feedback from its members found that many cared more about liquidity and execution time than toxicity.
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Market makers, with whom the firm has been in discussion over the past few months, said they are supportive of the change. Haynes said he expects one or two major players in the market to trade on Aquis once the change goes live in October pending regulatory approval.
The expectation is the introduction of high-frequency trading will “dramatically change” execution times, leading to a significant increase in volume and improving best execution on the venue.
“We anticipate an increase in provisions from banks, we’ll have high-frequency trading firms aggress against that liquidity,” Haynes said. “We're pretty convinced that in the medium term, we will see a significant increase in market share.”
As it stands, around 5% of European equities are traded through Aquis, according to data collected by Cboe.
Liquidity providers already trading on Aquis will be given the opt-out of trading with high-frequency traders.
“Some market makers do not want to trade against other market makers but other market makers absolutely do,” said Haynes.
“This is a solution to that problem, but also keeping all market makers harmonious.”
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