European multilateral trading facility (MTF) BATS Europe has revealed plans to launch a smart order routing (SOR) service to exchanges, fellow MTFs and dark pools on 15 February.
Only one other displayed pan-European MTF, Nasdaq OMX Europe, currently has a smart routing service, which it has offered since its launch in September 2008. While trading venues in the US need routers, as Reg NMS’s order protection rule requires them to send orders to the venue with the best price, smart order routing in Europe is typically handled by brokers rather than trading venues.
BATS Europe’s router will be available through the corresponding CYCLE strategy, which cycles through displayed and non-displayed pan-European market centres, searching for liquidity at the best prices up to and including the limit price on the original order.
After routing up to the limit price, any remainder will be posted on BATS Europe’s integrated order book unless the order is marked as immediate or cancel.
The strategy sequentially targets one market centre at a time and then sends the full remaining quantity on to the next. If the order initially cannot be filled completely at the European best bid and offer at a particular market centre, the CYCLE strategy will route to other market centres at the limit price of the original order.
Multiple options are available with CYCLE including the ability, on an order-by-order basis or at a port level, to route only to external displayed venues, only to external non-displayed venues or to both, which is the default. All routable orders using the CYCLE strategy access the BATS Europe’s dark pool and integrated book before routing out to away venues.
The routing fee for CYCLE will be 0.50 basis points for all securities. The routing fee for accessing dark pools is 0.30 basis points for all securities.
By comparison, Nasdaq OMX Europe charges an all-inclusive trading fee when routing orders, which varies according to venue and – for orders using the MTF’s PRIM and BLNK routing strategies – whether the order is passive or aggressive.
Its cheapest all-in routing fee is for the London Stock Exchange, for which it charges 0.75 basis points for a passive execution and 0.30 bps for an aggressive execution. The most expensive aggressive charge on Nasdaq OMX Europe is 6.8 basis points for Wiener Börse.
“Our new smart order routing solution is designed to give BATS Europe’s market participants even more choice for deploying their trading strategies whilst minimising market access complexities and costs of meeting best execution criteria,” said Mark Hemsley, CEO of BATS Europe in a statement. “Smart order routing is one of a series of new features for BATS Europe that we expect to lead to further growth in market share and notional value traded.”
BATS Europe is currently the second-largest pan-European displayed MTF by share pan-European traded value. According to its own figures, BATS Europe had a pan-European market share of 4.17% on Friday, behind Chi-X Europe’s 17.52% and above Turquoise’s 3.16%.