European buy-side traders have questioned the usefulness of the dark pool trading data being made available by six leading equities brokers from this week.
On Monday, a group of dark pool operators – Citi, Credit Suisse, Deutsche Bank, J.P. Morgan Cazenove, Morgan Stanley and UBS – announced that they are sending daily trading volumes to trade reporting facility Markit.
Following validation, Markit will publish value-traded data on its website on a country-by-country basis on the following afternoon. On 24 May, for example, the six brokers traded a total of €276.38 million, just under half of which (€123.30 million) was derived from trading UK stocks.
Previously, only Citi and Credit Suisse had provided volume statistics on their internal dark pools, on a quarterly basis. Markit already provides post-trade reports of over-the-counter (OTC) executions, but these do not split out automated trades, i.e. from brokers’ dark pools or systematic internalisers, from manual OTC trades.
“For me, this data provides no added value and I am struggling to see which types of market participant would find this useful,” Sören Steinert, head of trading at Quoniam Asset Management, told theTRADEnews.com. “It would perhaps be a little more useful if it was reported in the context of total dark trading in Europe, but the data is of very little use in its current format with just six brokers.”
Goldman Sachs, which operates the SIGMA X dark pool, and Bank of America Merrill Lynch’s MLXN, are among the largest omissions from the Markit data.
According to John Serocold, managing director at the Association for Financial Markets in Europe, a trade body for wholesale financial market participants, who was responsible for coordinating the initiative, the main purpose of the data will be to provide extra “market colour”.
“As it stands, automated trading in broker dark pools cannot be broken out from Markit BOAT’s OTC reports,” said Serocold. “What we are providing is intended to give a better feeling of where broker dark pool activity is occurring.”
Serocold admits that the possibility of providing more granular data had been discussed, but says this was decided against because of the potential for information leakage.
Adrian Fitzpatrick, European head of investment dealing at Aegon Asset Management, says a state of equilibrium needs to be reached on the distribution of post-trade dark pool data.
“Traders need to weigh up the risk of losing some anonymity against the benefits of having more information on which to base trading decisions,” said Fitzpatrick. “If the information was provided on a sector level, as opposed to by country, for example, the buy-side would be far better off when making investment decisions.”
While the data may not be as valuable as some buy-side traders would like, it is a further sign of willingness from brokers to come up with a market-led response to the ongoing debate about how their dark pools should be governed.
“Part of the reason behind the initiative was to discourage more intervention from CESR and the European Commission,” said Serocold. “We are trying to build up a critical mass of the trading in broker dark pools and there is the potential to combine this with other sources of data to create other useful products.”
The Committee of European Securities Regulators (CESR), which is charged with coordinating supervision across the continent’s securities markets, proposed in a consultation paper issued last month that broker dark pools should be reclassified as MTFs when they reach a certain level of trading activity. Brokers assert that being held to MTF obligations, such as fair and open access and pre-trade transparency requirements, would undermine their ability to achieve best execution for their clients. Responses to CESR’s MiFID consultation paper will be fed into the European Commission’s review of the directive, which is scheduled for this summer.
Japan’s Nomura became the first investment bank to reclassify its dark pool NX from an OTC crossing network to an MTF in January.