Jeremy Grant's article in the FT today, "Dark pools

start evolving into brokerage operations", points to something

that is starting to be talked about with increasing vigour. This

is the simple fact that, in the post-MiFID landscape, the roles

of exchanges/MTFs and the broker dealers are starting to become

almost interchangeable. The announcement that Turquoise has

received FSA approval to offer an onward routing service follows

similar announcements by NASDAQ OMX Europe and, of course,

Baikal, which is making a big play of its complete smart workflow

capabilities ahead of its launch in the summer. At the same time,

BATS Europe is equipped with the same onward routing service used

by its US parent and NYSE Euronext SmartPool offers connectivity

to a "pool of pools".

The aim of these

initiatives is simple - to reduce the cost and complexity of

navigating through an ever-diversifying number of possible

execution options. This is exactly the same service that the

large broker dealers offer to their customers and many of these

brokers operate their own dark pools which, with their customers'

permission, they direct flow into first. The announcement last

week that

href="http://www.finextra.com/fullstory.asp?id=20011"

target="_blank">Goldman Sachs, UBS and Morgan Stanley have

signed a "dark pool pact" is really just more of the

same and follows similar announcements from Instinet and Credit

Suisse last year.

Part of the problem is that

the term "dark pool" now covers so many different types of venue

and activity. On top of the exchanges, MTFs and broker pools

mentioned here we also have buy-side crossing networks such as

Liquidnet and Pipeline that will offer onward routing services

too. To make matters worse each of them is treated differently by

the regulators and so trying to form any consistent view across

them all is pretty tricky.

As this situation

develops, the primary exchanges and MTFs are being careful not to

step on the toes of their primary customers (the brokers) whilst

still meeting the very real requirement of different customer

groups to best execute. At the same time the broker dealer

community is committed to internalising as much flow as possible

and so it seems almost inevitable that they will end up competing

directly in more and more instances. When you look at the list of

those firms that actually own the majority of MTFs it would

appear that the broker dealer community recognised this fact some

time ago.