ALKS LOUDLY and moves fast. Alasdair Haynes, the chief executive of the pan-European trading platform Chi-X Europe, cuts a larger than life figure. The boss of the trading platform, which has grabbed a 30 per cent share of FTSE 100 trading from long-established rival the London Stock Exchange (LSE) since it was set up in March 2007, has already convinced our photographer not to take a picture outside his offices in the luxurious Commodity Quay, a stone’s throw away from Tower Bridge, which is stacked full of multimillion pound motor boats.
“I don’t want shots of that,” booms a lean, confident Haynes. He is sitting at a meeting table in his busy ground floor office overlooking the Quay. “We are a low cost business. People will think we have a corporate yacht and a corporate jet. We don’t have either. Our corporate jet is easyJet.”
Apart from Chi-X’s impressive share of UK trading, it also claims a 23 per cent share of equity dealing across the 13 other European markets it operates in, such as France and Germany.
Haynes, who took up his post in January from Peter Randall, is happy to be in this hot seat. He claims: “This is probably the most exciting job in the City, helping to increase liquidity in the capital and across Europe. I like change, and I like building things.”
Haynes, 50, has spent his career either building electronic asset trading platforms or dealing in them. His varied history includes a ten-year spell as chief executive of ITG Europe, where he built the first dark pool trading platform (where trades are declared after hours) in Europe in 1998, as well as a stint as global head of derivatives at HSBC James Capel.
After almost a year out of work due to an illness from which he has fully recovered, he was poached back to run Chi-X, which is by far the largest of the new trading platforms set up three years ago to take advantage of the Markets in Financial Instruments Directive (Mifid), the European Commission ruling in 2007 that broke the monopolies of national exchanges.
Chi-X has been able to take such a large share of the market because it is much cheaper and faster than its traditional rivals. The trading platform’s lowest commission is 0.01 basis points (bps) on the value of trades made by institutional clients, while the LSE’s lowest price is 0.29bps, although the exchange does offer its largest clients some trades for free.
The newer rival also came to market with advanced computer systems. Haynes says: “We have the latest technology. And we update it all the time. We can handle 235,000 messages a second. That means we can handle a trade faster than a human can blink. And we can get faster.”
He adds: “Because of our cutting edge technology we can closely control our cost base. We have built a market from scratch that is very efficient.”
The whole business runs on just 41 staff, a tiny figure given the volumes it processes. All of which sounds impressive except that these lean, new rivals to the old cumbersome exchanges are yet to make any money for their investors, something which now needs to change.
Chi-X, which is 34 per cent owned by Nomura and 19 other investors, lost £5.5m last year and £3.8m in 2008. The next biggest, Bats Europe, lost £10m last year. And the third largest, Turquoise, was bought by the LSE for last December for its technical capabilities for an undisclosed fee after never having turned a profit.
By comparison the LSE’s third-quarter update in January saw sales hit £155m, a nine per cent drop on a year ago. However, analysts are impressed at the speed newish LSE chief executive Xavier Rolet has cut execution and settlement charges, taken steps to improve the firm’s IT, and expanded into new assets classes. They expect an improvement when the firm presents its full-year results on 21 May.
Last month, Nasdaq OMX Europe became the first of the 16 new European markets set up after Mifid to fold after only averaging a one per cent share of pan-European trading. Haynes says the collapse was a “watershed moment. We have reached the point where investors will not back businesses that continue to make losses in this market.”
He adds: “The numbers of players have to decline in this market. There will be a number of mergers and consolidations over the next two to three years.”
However, Haynes is adamant his business will not be part of the fallout. He says: “We will be profitable this year – unless trading volumes are materially different, or we make a large investment.”
Observers are impressed at the speed Chi-X has managed to build market share, but add the only way it can make money for its investors is to hike its prices and see how many of its clients it can retain, or sell itself to a rival. Haynes counters: “We are not looking to put up prices. We will hold out prices over the next 12 months. A 0.01bps margin is enough for us to build a profitable company. Exchanges will have to come down to our level.”
As regards selling the business he says: “I can tell you that the senior management do not think this business should be sold, but that is up to our shareholders. We can create significant value for our shareholders and investors in the market as a whole.”
He adds: “We have £37m of cash on our balance sheet. We are not a business that is going anywhere. Our plan is to continue to grow market share.”
Haynes says that although the US and Europe have similar sized economies, assets are traded seven times more frequently in the US, resulting in a more liquid market and making it easier to raise cash. Haynes says over the long-term new trading platforms will help double the size of European markets.
Chi-X is looking at offering a derivatives index as well as charging for a full market book of prices data, but Haynes believes that both of these are around “18 months to three years away depending on the growth of the business”.
Chi-X is currently able to run its market with a handful of compliance staff, and by contrast the LSE employs 150. However, a review of Mifid being carried out by EU financial services commissioner Michel Barnier, and likely to report next year, may tighten compliance procedures as light touch regulation is being rolled back as a consequence of the financial crisis. This would push up costs for loss-making trading platforms like Chi-X.
Haynes says: “Accusations that our compliance is of a lower standard is untrue. And we have not been told this by our regulators.” He adds: “Mifid was a major change. It is not unreasonable to say that the regulators didn’t get it all right first time. But they got a lot right. I see this review as a tweaking rather than making wholesale revisions to the rules. I truly hope we won’t see greater rules placed on our business.”
Haynes seems certain the world is back on the road to recovery. He says: “There is an appetite for equities in the world again. There will be a lot of interim ups and downs but the trend is positive. Equities in 2010 will grow across Europe.”
Chi-X and the other new trading platforms have triggered a revolution, forcing large exchanges to install better equipment, cut prices, and introduce a range of new initiatives. But unless Haynes and his competitors can find a way to make money out of their large market shares, they will be remembered as firms that broke a logjam, but failed to truly smash the old order. It is all still to play for.
CV | ALASDAIR HAYNES
Work: 1977–1978: left school at 18 and became an office junior at Barclays Bank, Oxford Street; 1978–1988: Morgan Grenfell, left as head of equities risk management; 1989–1992: Bankers Trust, head of listed and short dated equity options; 1992–1994: UBS, head of European listed derivatives; 1994–1996: HSBC James Capel, global head of equity derivatives; 1996–2006: chief executive ITG Europe; 2010–present: chief executive Chi-X Europe.
Family: Married with two children, lives in Kent.
Hobbies: Cricket and golf, plays off a handicap of “20-something.”