Aquis Exchange has launched an incentive scheme that hands stakes to the exchange’s most active market makers to help jumpstart the market for smaller companies in London.
Set to launch in January, the plan aims to reinvigorate the AQSE market which targets companies wanting to go public but are too small for a listing on the bigger and higher-profile Aim market.
The objective is to generate more competition into the market, narrow spreads, increase liquidity and enhance the overall performance for all users.
AQSE exchange has struggled under several different owners since it was first launched in 2005 as Ofex. Aquis acquired the trading platform, then known as the Nex Exchange, from Chicago’s CME Group in March for a nominal price of £1.
Signatories to the plan include brokers Canaccord Genuity, Liberum, Peel Hunt, Shore Capital, Stifel and Winterflood Securities. They will be awarded warrants convertible into AQSE equity. This opportunity is open to the top five firms each year, with the best performers receiving a larger percentage.
Over the three-year term of the scheme, market makers could receive equity up to 19.9% in AQSE.
Market makers will be required to offer two-way prices, in retail size, for 50% of stocks in the Apex segment of the AQSE Growth Market. Spreads must be no wider than 5%.
Apex is aimed at more established companies, with a larger market capitalisation (£10m-£500m), a free float of at least 25%, broad retail access and ones that adhere to a recognised corporate governance code.
The scheme forms part of Aquis’ wider planned enhancements to make AQSE a home for growth companies, including working with brokers, institutional asset managers to provide a greater support in raising capital and supporting orderly markets through the prohibition of short selling.
“We’re going back to the days when the stock exchange had incentivised the user with a stake,” said Alasdair Haynes, chief executive of Aquis, which will launch the plan on Monday. “The retail market is crucial to getting more liquidity.”
The plan also comes at a time when coverage for small companies has diminished under MiFID II’s unbundling requirements.
Research undertaken by Peel Hunt last year found a majority of fund managers believed the regulation had a “detrimental” effect on research quality and demand and liquidity for small and mid-cap stocks. Two thirds of the 102 fund groups polled said less research is being produced in the small and mid-cap space as a result.
“Following the implementation of MiFID II, some small and mid-cap listed companies have experienced a significant reduction in the liquidity of their share, hindering their ability to attract equity investment,” said Iain Morgan, head of execution and trading at Peel Hunt. “We are pleased to be supporting a scheme that seeks to improve trading in these companies, so they can access the investment capital needed for future growth.”