Baikal, the dark pool currently in development by the London Stock Exchange (LSE), plans to offer both continuous and random periodic crossing on its order book in addition to its onward routing functionality, and is continuing its search for broker investment. The platform is expected to launch at the end of June this year.
The random periodic auction will cross resident orders every one to 30 seconds in a bid to limit gaming. The continuous crossing function will support limit, market, immediate-or-cancel (IOC) and resident orders. IOC and resident orders will have the ability to cross if those placing the resident orders allow it. Members will also be able to determine their own minimum order size.
In addition, Baikal is aiming to launch an algorithmic crossing engine to enable algorithmic orders such as VWAP and TWAP to cross at the parent level.
Baikal will also route orders to other regulated markets and MTFs. Upon launch it will be connected to the LSE’s own order book, LSE-owned Italian exchange Borsa Italiana and MTFs BATS Europe, Chi-X and Turquoise. However, while Baikal awaits regulatory approval in all markets, it could link to some venues using direct market access (DMA) in the first instance.
“We hope to have access to around 23 markets upon launch,” John Wilson, CEO, Baikal, told theTRADEnews.com. “However, some of the access may be via a DMA provision from brokers, as we are only allowed to become members of markets when we are fully authorised, and this limits the amount we can get done pre-launch.”
Baikal was originally a joint venture between the LSE and now-failed investment bank Lehman Brothers. While the LSE resolved to continue with the project alone after Lehman’s collapse last September, the platform continues to seek broker investment.
“We are currently fully-owned and funded by the London Stock Exchange Group, but we are interested in having several broker investors in the platform,” said Wilson. “Tentative discussions around potential suitors, including the interconnectivity of liquidity with internal dark pools, have already taken place.”
Some brokers have expressed reluctance to open their dark pools to aggregation services, which could hamper Baikal’s plans to connect to them. However, Wilson said Baikal has devised steps to counteract this.
“We will work with brokers so that their algos can be tuned to the Baikal order book to match our market model,” he said. They will then have a better sense of how those algos are executing. Moreover, even the best internal crossing engine only achieves around a 20% crossing rate if they are lucky, so there is a lot that isn’t being internalised and that flow needs to go somewhere. We hope brokers will send the orders they can’t internalise to Baikal.”