Exchanges: Plus adds to market share


Peter Koh
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Trading activity quadruples in November but widening spreads on small caps becomes a concern for investors.

Trading on Plus, an upstart UK exchange, more than quadrupled in November after the launch of a new trading system and an expansion in the number of stocks traded.

Trading activity on Plus leapt 220% in November on October to 206,442 bargains, worth some £1.6 billion ($3.24 billion). In terms of value, trading in November was up 300% compared with the month before and volumes were also up 250% compared with one year earlier.

Plus, which operates a quote-driven market on a new platform built by OMX, last October increased the number of stocks it trades to include all London-listed shares, including those of the FTSE100. The exchange also admitted five new members, bringing the total to 53.

The new exchange has already enjoyed considerable success in winning market share from the London Stock Exchange in small-cap and AIM-listed companies. Some 40% of the trading of the FTSE Fledgling index constituents takes place on Plus, which also has a market share of about a third in stocks dual listed on AIM and Plus. Since the addition of large caps, however, the heaviest traded stocks have mirrored those on the main market. In November, bank stocks, including Barclays, Royal Bank of Scotland and Northern Rock were among the most heavily traded. Significantly, Plus managed a daily peak of 34% of the trading volume in shares of troubled lender Northern Rock.

Plus’s success with retail brokers, its target market, is becoming more and more evident. The group estimates that as much as 25% of all daily UK retail trading activity took place on its market in November and that it is now home to one in three of all retail trades transacted in the UK.

Trading on Plus adds up


Source: Plus Markets Group

The exchange plans soon to expand its coverage to include all liquid EU stocks, some 7,500 securities. "On the basis of our November trading figures, Plus is now the fourth-largest stock exchange in Europe, by negotiated trades," claims Cyril Théret, business development director at Plus. "Our ambition is to become the deepest pool of small-cap and mid-cap liquidity in Europe and the arrival of continental European stocks on our platform before Christmas will take us another step further towards that goal."

Plus’s success in winning business from the LSE comes from the growing dissatisfaction of the retail brokerage community with the incumbent exchange, which has been orienting itself to cater more to the demands of the institutional market by investing in a new fast, high-capacity order-book system.

A bigger concern for small-cap investors recently, however, is the alarming widening of spreads on some small caps – in some cases to as much as 25% or even 40%.

"When spreads are this wide there’s almost no point trading," says a prominent AIM investor. "You have to be very confident about your view because you don’t know how much of the price discrepancy you see is simply the spread that market makers are offering. The problem is that market makers are simply not adequately incentivized to provide tight spreads when the market is illiquid and their prices are no different whether you trade on the LSE or Plus."

According to a recent study by Christoph Kaserer of Munich’s Technische Universität and Dirk Schiereck of the European Business School, the average spread on AIM at 7.22% is the widest of any growth market in Europe. It compares with 4.52% on Alternext and just 2.23% on Deutsche Börse’s Entry Standard.