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Most Innovative Trading Product/Service

Aquis Exchange's Rule Change to Ban Aggressive Prop Trading

Aquis made a highly unusual move by amending its rulebook in February 2016 to limit the way proprietary trading firms can interact with the platform. The rule change means proprietary trading firms can only post passive orders, which are typically placed by market-makers to populate an order book and provide liquidity, rather than aggressive orders. It was a bold move – prop activity is often viewed as a key element of a diverse and liquid order book – but Aquis wanted to stamp out predatory activity. The move was met dismay by some prop firms, who left the platform immediately, but some buyside traders like it. Even though the platform only accounts for a small proportion of overall trading in Europe, the move helped Aquis’s market share of European equity trading by value of shares traded to double to more than 1%. The higher volumes have, in turn, led to new firms committing to join the platform as members.

Bats Europe Periodic Auctions Book

Bats Europe, which has turned itself into the region’s largest equity exchange in less than eight years, does not launch new services on a whim. Its periodic auctions book, which went live in October 2015, is a case in point. It offers investors an innovative way to trade regularly in size by running auction-style trading throughout the day on a separate order book. Unlike other continuous auction models, Bats’ periodic book is actually a lit market, because the indicative price and size of each auction is published pre-trade, meaning it will sidestep the caps on dark pools coming in under Mifid II. Furthermore, because there is no minimum execution size it has the potential to both encourage larger orders and also take on many of the smaller transactions being forced out of dark pools under Mifid II.

EFP Initiative, Icap

Icap decided during 2015 to partner with a firm at the opposite end of the market, stock exchange operator Bats Europe. They were unlikely bedfellows, but the partnership made complete sense as it has helped to solve a lingering issue with exchange-for-physical contracts, where one leg is exchange-traded and the other over-the-counter. Icap decided that it could use a Bats reporting service to allows its clients to report the OTC leg of European index EFPs and send it on to their clearing house of choice. The adoption of clearing for the OTC leg helps to relax the risk limits that Icap’s clients can take on, helping to boost liquidity in the product. Icap has routed more than €212 billion of notional equity baskets through the service for clearing during the financial year ended June 30. Garry Stewart, deputy CEO of Emea broking at Icap, said it was ‘a unique solution for a market which has seen limited innovation since it was founded’.

Liquidnet Targeted Invitations

Despite being one of the go-to venues for like-minded institutional investors to trade blocks, Liquidnet continues to seek out new ways to bring together natural buyers and sellers. One of its latest innovations is a system it calls targeted invitations. The service, which was launched in Europe in late 2015, ahead of a global rollout in US and Asia in July 2016, allows traders to message members expressing an interest in buying or selling large quantities of harder-to-find shares. The system works through actionable indications of interest with members able to choose eligible counterparties based on criteria of their own choosing. The fact that the invitations are committed orders – and only to members who fit the eligibility criteria – is designed to give participants confidence to trade in larger size knowing their information is secure.

London Stock Exchange Midday Auction

Introducing a pause during the middle of the trading day might frighten most market operators. But it didn’t faze the LSE, which began a third auction in taking place at noon in addition to the auctions at the start and end of each trading day from March 2016. The auction lasts for two minutes with a 30-second random close. It was a significant change to the make-up of the UK trading day, but mirrors similar auctions operated Deutsche Borse and others and the LSE hopes it will become standard practice across Europe. The rationale for the move was to lure larger trades favoured by buyside firms during a traditionally quiet period of the day. Order sizes are typically large in auctions because orders are prioritised by size rather than time during the auction period. The LSE has said it has been a smooth start to the initiative and though overall trading during the period is small, order sizes are up.