Six investment banks will from today report trades executed in their internal crossing engines on a daily basis via a new service provide by trade reporting and market data facility Markit.
The firms – Citi, Credit Suisse, Deutsche Bank, J.P. Morgan Cazenove, Morgan Stanley and UBS – have been testing the service for the last two weeks. During the testing period, Markit has found that the banks collectively accounted for between 0.62% and 1.02% of total European trading activity. The dark pools that will use the service are Citi Match (Citi), Crossfinder (Credit Suisse), DBA (Deutsche Bank), JPM-X (J.P. Morgan Cazenove), MS Pool (Morgan Stanley) and UBS PIN (UBS).
Trading data for each broker’s dark pool will be collected at the end of the day and published in aggregate on a country-by-country basis the next afternoon, following validation checks by Markit. The data will include trading between clients of each executing broker, as well as client trades matched against broker flow.
“This initiative is designed to bring further transparency into this area of over-the-counter (OTC) trading by providing verified data where previously there has been only speculation, and by giving a clear indication of the actual levels of trading in crossing engines,” said John Serocold, managing director of the Association for Financial Markets in Europe, who played a coordinating role in bringing the banks on board. “As a further step in support of making more information freely available to all market participants, it should provide useful data for the MiFID review being undertaken this year.”
The amount of trading conducted in broker dark pools has been an area of contention between banks and trade body the Federation of European Securities Exchanges (FESE) for many months. FESE claims that all broker dark pools should be reclassified because they perform very similar functions as multilateral trading facilities (MTFs).
Brokers counter that their crossing engines are already subject to strict regulations as part of their best execution obligations to clients under MiFID.
Since the debate started, Credit Suisse and Citi have both started to report the total amount of trading in their dark pools on a quarterly basis.
In Q1 2010, Credit Suisse’s Crossfinder executed €16.3 billion, while Citi Match, the dark pool operated by Citi, traded €12.38 billion.
In January this year, Nomura became the first investment bank to reclassify its dark pool NX from an OTC crossing network to an MTF. According to data vendor Thomson Reuters, NX traded €1.65 billion, or 0.19% of total European trading, in April.
Europe-wide securities regulator the Committee of European Securities Regulators released a MiFID consultation paper in April, which sought comment on a range of market structure issues, including the regulation of dark pools. One proposal was to reclassify broker dark pools to MTFs should they reach a certain threshold. The MiFID consultation paper also noted that €55 billion was executed in broker crossing networks in Q4 2009, accounting for 1.4% of total European trading, or 4% of total OTC trading.