A Shot in the Dark - 30th June 2009
First Published Monday, 20th July 2009 06:34 pm from Fidessa : Fidessa
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Nice to see that BATS Europe has announced that it, too,
not too surprising, it is interesting to note that they will be
offering a maker taker pricing model as this will be sure to
extend the current price war into the dark arena as
BATS joins a long list including Chi-X,
Turquoise, NYFIX Euro Millennium, SmartPool, Pipeline, NEURO Dark
and, of course, Baikal, that will all offer traders different
destinations for their dark order flow. If you add to this the
pools operated by the major banks such as Goldman Sachs, Credit
Suisse, UBS and Bank of America Merrill Lynch, then the choice
becomes truly bewildering.
In the headlong
rush to launch these initiatives I wonder whether the firms in
question have stopped to consider how the trading community
really wants to use this type of facility. The issue seems to be
complicated by the fact that the term "dark pool" is being used
to describe an ever-widening array of platforms and activities
that stretch the original concept (a block crossing facility that
minimises information leakage) almost completely out of shape.
This point seems to have been picked up by the regulators, too,
as both the SEC and the FSA are concerned about their collective
impact on investor protection and market transparency.
In any event, trading firms will need to find new ways
to navigate intelligently across all these pools and seek the
most appropriate liquidity in each. This will inevitably require
further technology investment for those firms that wish to
maintain complete control over where they route their order flow
to. This is where the offerings from Baikal and Turquoise have a
potential advantage as they are providing a Liquidity Aggregation
Service which is similar in concept to the "compare the market"
style insurance web sites that we hear so much about. Baikal and
Turquoise are also good examples of how the trading landscape is
reshaping itself. The traditional clear-cut distinctions between
buy-side, sell-side and exchanges are increasingly being replaced
by more murky concepts such as senders of flow, routers of flow
and end destinations. In some cases, participants are acting in
multiple categories and so the distinction between brokers and
venues is becoming increasingly blurred.
different note, I was invited by the folks at Carnegie to
participate at an event last week that examined fragmentation in
the Nordic region. The ensuing debate between OMX and Burgundy
was respectful but highlighted the different propositions of the
traditional exchanges versus new, lower cost MTFs. It was also
interesting to meet many of Carnegie's customers and discuss the
impact of fragmentation on their stock at first hand. Many thanks
to John Lauritsen and his team for their professionalism and
hospitality in staging a very thought-provoking event.