Tag Archives: dark pool


Bats Europe Enables Direct Access for Buy-Side Managers

According to MarketsMuse market structure mavens, if you can say “dis-intermediate” five times in under 5 seconds, or if you can simply spell the word (without looking at this blog post), then “you’ll get the joke” i.e. exchange operator Bats Global Markets (acquired last year by CBOE for $3.2bil) is a disrupt-or. After sell-side firms were given direct access to a new block trading service for the European equity market launched by stock exchange operator Bats Europe in December,  it was just revealed that starting next month, buy-side asset managers will gain direct access to the same block trading platform. The pending roll-out will enable buy-side traders to submit their own Indications of Interest (IOIs) so as to reduce information slippage.

Bats Europe licensed technology from Bids Trading, the largest block trading ATS by volume in the US to launch Bats LIS (Large in Scale) in December. Per reporting from Markets Media….

Dave Howson, chief operating officer at Bats Europe, told Markets Media that average trade size has grown to more than €1m over the past month since sell-side firms were given direct access to Bats LIS. He added: “We have eight to ten brokers regularly utilizing the platform with additional participants joining all the time.”

Buy-side firms have been able to access Bats LIS through a broker but the service is being rolled out so asset managers also have direct access.

Dave Howson, Bats

“Over the next month, buy side will have direct access to submit indications of interest into the Bats LIS platform,” said Howson. “One of the key benefits of the platform is that the buy side control their IOI up until it is matched before turning it over to a designated broker for execution, which means information leakage in minimized.”

Under MiFID II, the new European Union regulations which come into effect in January next year, block trades above a specified minimum size can trade under a large in scale waiver which allows market participants to negotiate trades without the need to make quotes public to meet the pre-trade transparency requirements. The ability to trade large blocks will become even more important as MiFID II also places volume caps on trading in a dark pool without a waiver.

Another MiFID II compliant service for block trading that has been introduced by Bats Europe is the Periodic Auctions book. Launched in October 2015, the Periodic Auctions book is a separate lit book that independently operates intra-day auctions throughout the day. Howson said: “A priority is to change the structure of our Periodic Auction order book to optimise the duration of the auction, which should result in increased order matching.”

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He continued that another priority in Europe is to increase the volume of trading of exchange-traded funds, which should be boosted by the MiFID II requirements to report ETF trading. Howson added: “The new trade reporting obligation under MiFID II will increase transparency in ETFs so should we expect to see an increase trading of these products on trading venues.”

In June last year Bats launched a new indices business with the introduction of a UK-focused benchmark index series of 18 different indices. In December, Bats added eight indices for the French, German, Italian and Swiss markets bringing the total number of European indices managed by Bats to 26.

“We are currently focused on building European coverage with our indices,” added Howson. “Further down the road we’ll look to create products on the back of the indices, but right now we’re focused on expanding our reach.”

Bats Europe operates a trade reporting facility, BXTR, which will be registered under MiFID II.  BXTR reported more than €4.8trillion in transactions last year.

To continue reading Markets Media coverage, click here
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Credit Suisse Bids Adieu to Mr. Algo in Wake of Dark Pool Fine

(Bloomberg LP reporting via TradersMagazine) — Dan Mathisson, aka “Mr. Algo”, the executive who helped build Credit Suisse Group AG into an electronic-trading powerhouse over the past decade, plans to leave the bank at the end of next month, according to people familiar with the matter.

Mathisson, who most recently served as head of U.S. equity trading for the brokerdealer, made the decision to go, according to the people, who asked not to be identified discussing personnel matters. The bank plans to separate electronic trading from block trading, said one of the people, after those businesses had been pushed together during his ascent. The separation is part of broader changes within the Zurich-based company’s markets business.

The 45-year-old is leaving at the same time the private stock-trading platform that he oversaw is under investigation. Bloomberg News reported in September that the bank will pay more than $80 million to settle federal and New York authorities’ allegations that it didn’t adequately inform customers of how the Crossfinder dark pool operated.

Mathisson plans to open his own asset-management business next year, according to a person familiar with the matter. A company spokeswoman said he wasn’t available to comment. The Wall Street Journal reported earlier Tuesday that Mathisson is leaving.

dan mathisson
Dan “Mr.Algo” Mathisson

Mr. Algo

Once dubbed “Mr. Algo,” Mathisson was one of the most prominent faces in modern, electronic markets. He help build Crossfinder into one of the largest U.S. dark pools. When lawmakers started to ask whether Wall Street’s private trading clubs had made stock markets less transparent and less fair, Mathisson trekked to Washington to defend them in a way that was unparalleled by his peers at other banks. He testified several times before Congress in recent years, vowing that dark pools weren’t as mysterious as their cryptic-sounding name implied.

He joined Credit Suisse in 2000 after eight years at quantitative hedge fund D.E. Shaw & Co., where he was the firm’s head stock trader and built his own trading models. Credit Suisse executive Bob Jain, who ran the bank’s quantitative trading desk, introduced Mathisson to colleagues as “Mr. Algo,” a reference to his status as an innovator in a field that was just starting to sweep through Wall Street: Using computer algorithms to automate big transactions.

Mathisson is known for being as much a translator as a trader. A fixture at industry conferences, he’s well regarded for his skills at explaining the complex architecture of the modern stock market in ways that a layman can understand, according to peers.

Under his leadership, Credit Suisse grabbed market share by selling algorithms directly to money managers. The programs resulted in better executions for institutional investors, who want to have their large orders filled without stock prices moving against them.

Before dark pools ran afoul of regulators, one of their biggest threats in Washington was lobbying by stock exchanges. New York Stock Exchange and Nasdaq Inc. executives were aggressively complaining to lawmakers that too much volume had moved off public venues, which had made trading less transparent and could affect the prices all investors pay to buy and sell shares. When the Senate and House held hearings, Mathisson became the go-to witness for banks that operated dark pools.

“Much of the debate over dark pools is misguided and is fueled by a desire by exchanges to avoid healthy competition,” he told a subpanel of the Senate Banking Committee in 2009.

For the full story, please click here


Plato’s Exec Retreat-A Blow to European Dark Pool Project?

(Bloomberg) via (TradersMagazine) MarketsMuse Fintech team notes that Deutsche Bank AG’s Stephen McGoldrick, who was leading a consortium of banks and asset managers in developing a new European dark pool for stocks, has decided to leave the project.

McGoldrick will return to his role as director of market structure at Deutsche Bank, according to a spokeswoman. Plato Partnership, the not-for-profit dark pool specializing in block trades, is being developed by eight banks and seven fund managers. The consortium has said it will redirect the profit it makes to academic research intended to improve Europe’s financial markets.

Stephen McGoldrick
Stephen McGoldrick

“Stephen has done an exceptional job supporting Plato Partnership through the early stages of its development,” said Joanna Crawford, spokeswoman for Plato. “The Steering Committee would like to thank him for all his hard work.”

Turquoise, a market majority-owned by London Stock Exchange Group Plc, was selected in July to build the venue. The LSE subsidiary counts Deutsche Bank and Goldman Sachs Group Inc. among its minority shareholders, and they are also among the banks backing Plato.

Dan Mathews, a senior vice-president at Citigroup Inc., and James Hayward, who works in strategic investments at Goldman, were among Plato’s original architects, along with McGoldrick, the spokeswoman said. Mathews and Hayward will remain with the project.

LiquidNet: Make Corporate Bond Trading More Liquid [For Buyside Only]

Many fixed income folks are lamenting about liquidity in the corporate bond market. LiquidNet, the institutional trading platform is determined to make corporate bond trading more liquid..for the buyside.

Just when you thought e-bond trading for corporate bonds was a never ending pipe dream…

Liquidnet Launches Fixed Income Dark Pool to Centralize Institutional Trading of Corporate Bonds

More than 120 asset managers across the US and Europe on-board for launch

Enrolled asset managers comprise two-thirds of top 50 holders of US corporate bond assets under management

September 29, 2015 08:00 AM Eastern Daylight Time

NEW YORK–(BUSINESS WIRE)–Liquidnet, the global institutional trading network, today announced the launch of their Fixed Income dark pool that facilitates direct, peer-to-peer trading of corporate bonds among asset managers in the US, Canada and Europe, creating a much-needed hub of institutional liquidity. Liquidnet has enrolled more than 120 asset managers, representing a critical mass of liquidity and a sizeable portion of assets under management for high yield and investment grade bonds in the US. At launch, the platform will enable trading for US and European corporate bonds (high yield and investment grade), emerging market corporate bonds, and European convertible bonds.

“Greenwich Associates research found that 80% of investors find it extremely difficult to execute large block trades; as such, a platform that can help ease that burden while not causing a shift in the trader’s workflow is a necessary part of the path forward.”

The Fixed Income dark pool has been designed to provide a seamless solution for corporate bond traders, providing them a protected venue in which to trade natural liquidity safely and efficiently. The platform has been built with input from Liquidnet’s network of leading asset managers and bolstered by the firm’s experience operating the leading dark pool for the institutional trading of equities. Similar to Liquidnet’s equities solution, the Fixed Income dark pool will provide the option for those corporate bond traders utilizing an order management system (OMS) to easily have their orders swept into the pool with minimal changes to existing workflow.

“The fixed income market has been woefully underserved by technology and, as concerns about a liquidity crunch continue to rise, it needs a transformation,” said Seth Merrin, founder and CEO of Liquidnet. “With close to 15 years of experience connecting asset managers around the world to solve the unique challenges of institutional equities trading, Liquidnet is uniquely positioned to provide a more efficient trading solution and experience that delivers a critical mass of natural liquidity that minimizes information leakage and maximizes best execution.”

Liquidnet has leveraged its relationships with partners and existing buy-side Member firms to ensure the platform’s success at launch. In June, the firm announced successful integrations with seven OMS operators that support direct connectivity, and a partnership with Interactive Data for continuous evaluated pricing to aid in pre-trade transparency and more efficient best execution analysis. In addition to new features, Liquidnet has also expanded its Fixed Income team and expertise with the recent high-profile appointment of Chris Dennis, formerly of BlackRock, as head of US Fixed Income Sales.

“The corporate bond market is desperate for innovation and improved efficiencies, and we’re starting to see several new trading platforms emerge,” said Kevin McPartland, Head of Research for Market Structure and Technology at Greenwich Associates. “Greenwich Associates research found that 80% of investors find it extremely difficult to execute large block trades; as such, a platform that can help ease that burden while not causing a shift in the trader’s workflow is a necessary part of the path forward.”

“Liquidnet Fixed Income was designed with significant input from the buy side to create the first true dark pool for corporate bonds,” said Constantinos Antoniades, Liquidnet’s Head of Fixed Income. “By facilitating a high-quality critical mass of participants, including two-thirds of the top 50 holders of US corporate bonds, Liquidnet will provide the most convenient, secure trading venue for institutional fixed income trading going forward.”

A recent survey of buy-side firms—comprising $12.15 trillion in assets under management—conducted by fixed income magazine, The Desk, stated that 58 percent of buy-side respondents indicated that they were planning to move to Liquidnet for their fixed income trading.1

Trading Ahead: Dark Pool Operator ITG Gives Itself Best Ex and Gets $20mil Fine

According to the BrokerDealer.com blog, MarketsMuse reports that “dark pool” operator ITG and its agency-only, best-ex, ‘conflict free’ brokerdealer affiliate AlterNet Securities appear to have been providing themselves with best-ex by capturing order information from ITG institutional customers and for that, they will pay  a record SEC fine of $20.3 million to settle charges that they operated a secret trading desk, the U.S. Securities and Exchange commission announced this week.

As described the SEC — and, unusually, admitted to by ITG ( ITG, -4.29% ) — there were two main charges — that the company operated a proprietary trading desk when it claimed to be “agency only,” and that it then used the confidential trading information of its dark-pool subscribers without disclosing that.

The regulator “found that despite telling the public that it was an “agency-only” broker whose interests don’t conflict with its customers, ITG operated an undisclosed proprietary trading desk known as “Project Omega” for more than a year.”

On Monday, ITG CEO Bob Grasser stepped down to be replaced by E*trade veteran Jarrett Lilien in the wake of the scandal and news of the SEC’s proposed fine. ITG General Counsel Mats Goebels also resigned, according to news reports.

An SEC press statement added, “[while] ITG claimed to protect the confidentiality of its dark pool subscribers’ trading information, during an eight-month period Project Omega accessed live feeds of order and execution information of its subscribers and used it to implement high-frequency algorithmic trading strategies (aka “HFT”), including one in which it traded against subscribers in ITG’s dark pool called POSIT.”

BrokerDealer.com provides a global database of brokerdealers operating in more than three dozen countries throughout the free world. – See more at: http://brokerdealer.com/blog/#sthash.6VqFIQkG.dpuf

Unlike previous SEC settlements where the accused pays a fine and does not admit any guilt, ITG admitted wrongdoing. Further, it will “pay disgorgement of $2,081,034 (the total proprietary revenues generated by Project Omega) plus prejudgment interest of $256,532 and a penalty of $18 million that is the SEC’s largest to date against an alternative trading system,” according to the SEC. 

For the full story from BrokerDealer.com, please click here


Electronifying The Corporate Bond Market Chapter 15: Liquidnet Tosses Hat Into the Ring

MarketsMuse editors are almost starting to lose count when it comes to the number of electronic trading initiatives from FinTech aficionados who purportedly intend to make the institutional corporate bond market more transparent, and hence more liquid..

Thanks to Liquidnet, the latest player to plug into the corporate bond market movement and throw their hat into the ring, there are now 15 (give or take) initiatives. We can only opine that those who believe that fragmenting marketplaces [particularly products that were never even centralized to start with] as a means to creating a competitive, transparent and hence liquid trading marketplace for institutional investors is at very best, counterintuitive. Some market structure experts might even go so far as to say this electronic bond free-for-all for market share is “completely assbackwards.”

Per coverage by Pensions & Investments Magazine, institutional trading network Liquidnet is set to launch an institutional dark pool for corporate bonds, in the third quarter this year. Best known as a dark pool provider for institutional equities trading, Liquidnet is integrating seven order management systems, which execute securities orders, to provide the connectivity and access to trading opportunities that are not currently available in the corporate bonds market. Liquidnet said in a news release Thursday the development will centralize “a critical mass” of corporate bond liquidity to market participants.

liquidnet“By connecting to (clients’) existing order management systems, asset managers will have direct access to a protected venue that allows them to exchange natural liquidity with minimum effort and minimum information leakage,” said Constantinos Antoniades, head of Liquidnet fixed income, in the news release. “The functionality, protocols and connectivity of our dark pool will create significant new liquidity in the broader corporate bond universe — not just in the most liquid segment of the market.”

Upon reading the press release via Pensions & Investments Magazine, one electronic market veteran had this to say, “The long-held thesis that a centralized marketplace, where all orders are routed and displayed in centralized limit order books (CLOBS) is the best foundation to attracting liquidity and by definition, also provides true best execution for legacy OTC products is a notion that seems to have gone with the wind.” Added that Opinionator (who chooses to remain anonymous given his current Industry role), “It’s only mildly surprising that the regulators (i.e. SEC) have no clue as to the impact of their enabling an industry-wide gambit that will turn the corporate bond market into an electronic rats nest. Despite a 5-fold increase in outstanding issuance during the past several years,  Dodd-Frank regulation has caused banks to step away from traditional market-making and risk taking, and consequently, the corporate bond market is only becoming increasingly more illiquid. More electronic platforms approved by regulators will simply make the corporate bond market even more fragmented and even less competitive.”

Wall St Execs Do The Flip-Flop While Being Grilled In Washington; Payment For Order Flow Exposed


Conflict of Interest is Of Interest to Senate Panel Members “just learning about” industry-rampant Payment For Order Flow Schemes . Market Structure To Be Re-Structured?

Excerpts below courtesy of The Wall Street Letter’s on the spot coverage of the U.S. Senate investigation of Wall Street’s affection for high-frequency trading aka HFT, and with specific focus on order routing and execution practices, particularly with regard to kick-back inspired payment for order flow schemes, “maker-taker” rebate schemes and likely conflict-of-interest issues within the context of brokers such as Charles Schwab and TD Ameritrade (among others) failing to ensure so-called “best execution,” a role that necessarily precludes receiving payment for directing customer orders to any counter-party other than the one offering the best available price for that sized order at that point in time.

Here’s the WSL story as of 8 pm EST on the first day of testimony from members of the securities industry; no surprise to note certain executives take the ‘walk backwards’ and no longer defending the practices that have enriched their business models:

Market participants commenting in front of Senate’s Permanent Subcommittee on Investigations hearing into ‘Conflicts of Interest, Investor Loss of Confidence, and High Speed Trading in U.S. Stock Markets’ noted that the SEC needs to re-examine or dismiss the maker taker rule and subsequent rebates as they’ve harmed consumer confidence and efforts to provide best execution.

Tom Farley, president of NYSE, noted to Senators Carl Levin, John McCain, and Ron Johnson that the maker taker model has led to a proliferation of sell-side broker dealers executing orders on exchanges that are offering induced rebates to create liquidity, rather than sending orders that offer the best execution. Continue reading