Barclays Capital is bringing its dark liquidity offering, LX Liquidity Cross, and smart router technology to Japan and plans to roll out its LMX next-generation trading platform in Asia starting from Q4, said Michael Kim, head of equity electronic trading, Asia Pacific.
Barclays Capital acquired the LMX and LX products as part of its purchase of the US assets of Lehman Brothers after the latter filed for bankruptcy in September 2008. In the months prior to the acquisition, Lehman had been rolling out its next-generation electronic trading products, including a new algorithmic offering under the LMX brand in the US and had planned to launch this in Europe and Asia. LMX is currently being rolled out in Europe after LX was launched there in early 2011.
“We are currently underway with localising LX and our Smart Router for Japan. One of the key things is to make sure we have a stable and advanced platform before we start to localise them into this region. We are doing a general upgrade of all of our algos to the LMX platform and we will be rolling them out starting Q4 in Asia,” Kim said, adding that the firm's current focus is on developing core algorithmic strategies such as Participate (which distributes orders in line with actual market volumes at a specified participation rate), VWAP, TWAP, Implementation Shortfall, Market-On-Close and Market-On-Open.
In April 2007, Lehman Brothers became the first investment bank in Europe to offer direct electronic access to a dark liquidity pool. Compared to Barclays Capital's legacy algorithms, the LMX algorithms are more streamlined and have more predictable behaviour, according to Kim. “From a sell-side perspective, there was a trend to make things much more complicated but we found people like algos that are optimised for local market microstructure, simpler to use and predictable. That's the core requirement nowadays and the new set of algos do provide that, and it's actually a much easier platform to build on,” said Kim, who joined Barclays Capital in September 2009 from Merrill Lynch.
LX Liquidity Cross centralises liquidity from various sources to maximise crossing for clients. LX is a top-three broker-dealer dark pool in the US and differentiates itself by actively profiling order flow to limit toxicity. Clients can control which flow types to interact with, based on reports made available to them. “Japan is where there's a greater need for liquidity management products. As much as 8% of the flow in Japan is done off exchange; the venues that are out there represent a meaningful market share. So it's a logical place to start the roll-out of LX and Smart Router within Asia and the market is ready for it,” Kim added.
The bank aims to complete the roll out of LMX and LX in Japan by the end of this year, and LMX in non-Japan Asia by the middle of next year. There is as yet no firm decision on which Asian market after Japan to launch LX.
The firm's BARX Hydra dark aggregator, available in the US and Europe, could also make its way to Japan in due course. “The Hydra will be useful in Japan because there are many venues out there but we'll have to look at the market opportunity before we put together a product. So once we're done with the introduction of the SOR and the LX in Japan, we'll review the applicability of Hydra.”
In the US, Barclays Capital has liquidity-sharing arrangements with UBS, Credit Suisse, ITG, Citadel, Knight and Getco. Typical agreements include bi-directional access for dark liquidity aggregators, smart order routers, and high-frequency trading strategies. In Asia, Barclays Capital would be open to similar liquidity tie-ups when the right opportunities arise. “We definitely will be part of the process of ensuring liquidity and looking at other people's dark pool and opening our dark pool for other people to look at. Once LX and SOR are in place in Japan, that will be the first market where we could have the liquidity sharing arrangements,” Kim added.
While other parts of the bank may be feeling the pressure of planned job cuts, electronic trading remains a bright spot within the business globally as well as regionally. “Currently, we are looking to optimise our current resources over expanding the team,” he said.
Barclays Capital's commitment to growing its Asia Pacific equities franchise was reaffirmed on 30 August 2011 with the appointment of Jack Yee as managing director, head of equity syndicate, Asia Pacific. This followed the appointment in July 2011 of Bhavtosh Vajpayee as managing director, head of equities, India.”¨
Author: Jill Wong