(Bloomberg) — An upstart stock market wants to bring the fight against the flash boys to Europe.
AquisExchange Ltd. has failed to gain traction after more than two years of operation. Now, its introducing a rule that will explicitly ban what it considers a predatory strategy known as latency arbitrage — or using the fastest sources of information on prices to take advantage of traders with slower data feeds.
Theyre not supplying liquidity, said Alasdair Haynes, the founder ofAquis. Those types of strategies, we dont want to see onAquis.
The approach resembles the strategy used by IEX Group Inc., the dark pool Michael Lewis lauded in his 2014 book Flash Boys.IEX uses a long coil of fiber-optic cable to create a speed bump that discourages latency arbitrage.
Aquisis trying to accomplish the same thing by banning high-frequency traders and other proprietary traders from placing anything other than passive orders. That means they can only supply orders and arent allowed to act on another traders bid or offer. Although Haynes believes this might cut the companys market share in the short run, hes hoping it will ultimately help his business to grow.
This is absolutely not against HFT, said Haynes, the former chief executive officer of Chi-X Europe Ltd. Theres plenty of HFT firms who are using high frequency to supply liquidity. And thats fantastic.
Aquiswants to increase its market share to 1.5 percent of European trading, a level it figures could be a tipping point in encouraging more brokers to connect to the platform. It averaged about a 0.6 percent share in the past five days, according to data from Bats Chi-X Europe. IEX is the third-largest dark pool in the U.S., with about 1.7 percent of the nations stock trading in January.
Haynes said he has identified several instances of predatory, or toxic, trading. On those occasions, it was followed by a drop in market share.Aquisobtained permission from the Financial Conduct Authority to make the change to its rule book. It also consulted bank dealers and investors.
