Recent news that a group of Middle East investors have taken a stake of around 17% in Plus Markets, an alternative trading platform in London, is an interesting development and a possibility that I had mentioned in a recent article entitled Middle East Exchanges: The case for consolidation.
The investment in Plus should prove a profitable exercise for Amara Dhari Investments. Plus is run by Simon Brickles, the former head of AIM, the London Stock Exchange’s junior, and at times, controversial sibling. So far, Plus has managed to capture most of the trading in about 300 AIM quoted companies. The alternative venue seems to have a defendable business model. Its core revenue stream is data sales; an increasingly coveted commodity given what MiFID has wrought on the European landscape.
It is not clear whether the Middle Eastern investors will attempt to take Plus home or not. There is certainly ample room for an alternative such as Plus, Chi-X or BATS to launch a regional network for the trading of certain securities in the Middle East. Riding on the coat tails of price discovery on the region’s established, government-owned exchanges, the alternative route could offer cheaper and more efficient trading and data dissemination services.
Trading fees in the region are high by international standards and some exchanges are operating with EBITDA margins of around 90%. There is considerable room for competition, provided that regulatory bodies go along with this. Alternative initiatives can rally political support and gain regulatory approval to superimpose technological solutions and business models on discrete liquidity pools in the Middle East, leading to integrated or semi-integrated regional solutions; something that still does not exist.
Contrary to previous efforts in the region, the entry of alternative trading networks will not be a test of the adage of ‘if you build it they will come’ in an exchange setting. Rather, it will be an act of carving liquidity out of a certain market and re-depositing it somewhere else, and with good reasons for doing so. These are indeed interesting times for the exchange industry everywhere.