Euronext’s Closing Auction Targeted by Upstart Stock Exchange

A European stock market called Aquis has a new plan to win trades away from one of the biggest exchanges in the region, Euronext NV.

Exchanges like Euronext hold auctions to set end-of-day prices for the stocks they list -- a lucrative business that’s vital to investors such as index fund managers, whose jobs depend on tracking closing prices. By some measures, Euronext’s auctions are more expensive than the region’s other major markets.

Aquis Exchange Ltd., which handles less than 1 percent of European volume, wants to cut into Euronext’s auctions in France, the Netherlands, Belgium and Portugal. Its plan: enhance its all-you-can-eat trading subscription with a type of order that replicates the closing price on the primary exchange. It could cut trading costs for customers.

“What Aquis is doing is competitive, but will brokers find the savings sufficiently compelling to change their order-handling technology?” said Richard Balarkas, managing director at Quendon Consulting in London. He was previously chief executive officer at Instinet Europe Ltd.

Aquis charges customers a flat fee to trade. Top-tier subscribers pay 10,000 pounds (about $15,000) a month, and the new auction order -- which seeks to guarantee users get the price generated by the closing auction on a stock’s listing market -- is included in that price.

“We are not complacent, but auctions are notoriously difficult things to shift,” said Danielle Ballardie, head of cash markets at Euronext. “Overwhelmingly, what the investor will say is that they are very anxious about the potential of fragmentation of the auction, because they rely on it as a key part of setting the reference price for that day.”

Euronext’s Charges

Euronext says it charges high-volume brokers about 6,000 euros (about $6,500) to trade 100 million euros a month at its closing auctions. But that wouldn’t be the only charge a trader would pay to do business with Euronext. A similar broker using Deutsche Boerse AG’s Xetra would pay about 4,800 euros.

Closing auctions are a lucrative trophy for Euronext and other older exchanges, whose market share during the rest of the trading day has eroded. About 20 percent of European trading takes place during the close, according to Aquis.

“This is another innovation from Aquis Exchange that will improve the marketplace as a whole and yield major cost savings for our members,” said Aquis Chief Executive Officer Alasdair Haynes.

While Aquis was launched in November 2013, its European market share stands at about 0.4 percent as of this month, according to data compiled by Bats Global Markets Inc.’s European arm.

“It appears that Aquis is searching for a strategy,” said Peter Lenardos, an analyst at RBC Capital Markets. “Competition is a good thing for market participants, but we’ve been here before. The launching of a new product does not guarantee its success.”

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