PLUS Adds to Liquidity

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Legal Action Ceased

As was widely reported at the end of May this year, PLUS Markets Group plc ("PLUS") ceased its legal action against the London Stock Exchange plc ("LSE") in relation to restrictions on trading in shares listed on the AIM market.

Why was this legal action started in the first place? The main issue that PLUS had was the fact that anyone wanting to use PLUS to trade shares in AIM listed companies also had to report the trade to the LSE, causing an additional administrative burden and higher costs. The LSE had argued that its regulatory requirements did not prevent market makers from trading AIM listed shares on PLUS but simply ensured transparency and the regulatory integrity of AIM. The upshot being that it was simpler and cheaper to trade shares in AIM listed companies on secondary markets operated by the LSE only. 

Although PLUS had filed a High Court action against the LSE in September of 2008, in which it made its allegations of anti-competitiveness, it - and the LSE – managed to agree a "without liability" out of court settlement. As a result, the LSE will receive all the regulatory information it requires and market makers will have the ability to quote and trade shares in all AIM listed companies on the secondary PLUS-traded market.

Trading Platforms

PLUS operates what is by no means the only trading platform rivaling that of the one operated by the LSE. There are several others. Project Turquoise, for example, is a relatively successful secondary trading platform established by investment banks, including Goldman Sachs and Deutsche Bank.

It is a little early to say, but Plus’ trading platform push would seem very much a part of its medium and long term strategy. It was as long ago as July 2007 that PLUS was first granted Recognised Investment Exchange status by the Financial Services Authority, broadly speaking giving it the same privileges as the LSE. Subsequent to that, PLUS restructured its offering into two markets, the PLUS-quoted/PLUS-listed market and the PLUS-traded market. It is this latter market which permits the trading of securities across Europe.

Liquidity Drive

PLUS is certainly serious in its liquidity drive; on 8th September 2009 it announced the initiation of the PLUS Liquidity Scheme, the intention of which was to attract more equity trading volume to the exchange. This scheme essentially rewards market makers by enabling them to share in a proportion of PLUS' increased data sale revenues.

There are early signs that PLUS' drive is working - it has been reported that in September of this year more than one third of AIM trades were transacted on PLUS. This figure compares with one fiftieth 3 months prior. Seven market makers now make markets with PLUS. In fact, average daily trading activity exceeds that of AIM and if the figures are to be believed over 600 companies listed or quoted in London now see half or more of their daily trading volume transacted on PLUS, rather than on other exchanges. Quite a boast.  

Simon Brickles, CEO of PLUS, claims a "massive increase in trading small cap stocks". The rationale of the PLUS-traded platform was always to enhance liquidity possibilities for less-liquid companies. Ironically perhaps, the settlement between the LSE and PLUS may serve to enhance the attractiveness of the AIM market. It is far too early to tell, but with the number of AIM “de-listings” tailing off and with signs that the markets are turning, AIM – as well as PLUS – may well be both be winners in the final analysis.

Joss Alcraft is a Principal at Matthew Arnold & Baldwin LLP

www.mablaw.co.uk

more than one third of

AIM trades were

transacted on PLUS

Written by Joss Alcraft

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