Goldman Sachs, Morgan Stanley and UBS have ended a reciprocal arrangement to share flow between their European crossing networks from today.
Swiss bank UBS said the decision resulted from the launch of its dark multilateral trading facility (MTF) in November 2010.
“UBS continually refines its liquidity strategy in terms of both external liquidity accessed and the structure of UBS PIN, our internal crossing system,” Owain Self, global co-head of Direct Execution at UBS, told theTRADEnews.com. “Now that we have UBS MTF, which did not exist at the time we established bilateral agreements with Goldman Sachs and Morgan Stanley, we feel this is a more appropriate place to interact with third-party flow. Therefore we have offered our liquidity partners access to UBS MTF in place of our algorithmic access agreements to UBS PIN.”
The three brokers entered into an agreement to provide each other with reciprocal access to their European crossing networks in May 2009, a year after a similar deal was struck in the US. The link made each broker an algorithmic client of the other two brokers' crossing engines, enabling them to route client flow that could not be matched internally. For example, UBS and Morgan Stanley would use Goldman Sachs' algorithms to access liquidity in SIGMA. The connection between the three brokers' pools in the US remains intact.
UBS MTF traded €538 million in June 2011, representing 2.56% of the European dark pool market, according to Thomson Reuters Equity Market Share Reporter. UBS MTF was established as a complementary source of liquidity to the bank's PIN broker crossing network and incorporates the Swiss bank's prop and DMA flow, as well as client orders.
Goldman Sachs began its rollout of its dark MTF, Sigma X MTF, in April and has reported daily trading volumes of US$50-75 million. Sigma X MTF is operationally separate to SIGMA – for example it is hosted at NYSE Euronext's Basildon data centre – and includes both client orders and a subset of internal Goldman Sachs flow previously directed to its European crossing network, as well as third-party flow.
None of the brokers involved have released figures on the amount of flow exchanged by their crossing networks as a result of the agreement.
The European Commission's MiFID consultation paper, released in December last year, proposed that broker crossing networks that allow third-party access should be converted into MTFs, thereby removing broker discretion over how they match orders in their BCNs. Final proposals for MiFID II are expected in October 2011, having been delayed from Q1 this year.