Small Fish and Big Ponds

The main story on the Sell-Side Technology front this week has been the announced retirement of the Plus Stock Exchange (Plus SX), and the likely dissolution of its parent company, Plus Markets Group. Given the regulatory sensitivity surrounding its wind-down, nobody is talking on the record outside of the official notices posted on the investor relations website, but plenty of people are saying things behind closed doors.

As I quoted in my article earlier this week, some are sad that this has happened, saying that the UK desperately needs an exchange for smaller companies. The London Stock Exchange operates Aim, of course, but not all of those listed on Plus SX will qualify. Others are saying that it was inevitable, given the declining revenues of the group. A tangled web of rumour and hearsay has been slowly unravelling, though, since the company went public with the decision to terminate its formal sales process (FSP). One source that I spoke to on background said that discussions for a sale with several parties were still ongoing, while Plus itself confirmed that it was in talks with ICAP to sell off Plus SX for a nominal fee. Other outlets have reported the interest of certain industry persons in acquiring the technology assets of Plus Trading Solutions (Plus TS), and its derivatives market, based on Plus TS technology.

All parties, naturally, are keeping mum, so anything concrete is impossible to determine. It does, however, highlight the competition in the sell-side space, particularly on the exchange front. Declining liquidity, a move to broker crossing networks or dark pools, internalized trade and other areas are all impacting on the business models of traditional regulated markets. The Financial Services Authority in the UK has also put proposed rules in motion that mandate minimum holdings in net capital and financial assets for exchanges, equivalent to six months' operating costs, in both cases. The operating cost factor is the key driver behind Plus Markets' decision to put itself up for sale in the first place, with its balance sheet of sub-£5 million unable to guarantee its continued operation.

Cloud Cover
I know that I promised no more cloud puns in a previous column, but forgive me just this once. The other big story of the week is, of course, that NYSE Technologies is rolling out its Capital Market Community Platform to Europe. It claims to be the first financial services-focused offering of its kind ─ which surely draws more than a few raised eyebrows from the good folks at BT Radianz ─ and it provoked a large amount of coverage when it launched in the US during July 2011.

Connectivity is becoming increasingly important as liquidity fragments, and investment strategies lean towards multi-venue and cross-asset trading, whether that's through arbitrage or regular strategies. I'd expect more movement in this space as the year progresses, particularly from partnerships like that of IPC and Ffastfill.

UPDATE: ICAP has now agreed to acquire Plus SX for a nominal fee of £1, pending shareholder approval.