Pan-European multilateral trading facility Chi-X Europe has launched Chi-Vision, a new routing service aimed at improving the chances of execution by sending orders to external liquidity providers (ELPs).
Technical connectivity to the platform is already available, with pilot operation scheduled for later this month.
Chi-Vision will first try to execute orders on Chi-X Europe’s lit order book and the Chi-Delta dark book before looking for fills from its ELP partners, initially comprising agency broker Knight Capital and proprietary trading firm Citadel Securities.
According to Hirander Misra, COO of Chi-X, Chi-Vision will give clients a better chance of executing than other routing services because, rather than blindly firing orders out to other liquidity sources, it relies on its ELPs to send in indications of interest (IOI).
“Our ELPs will effectively act as brokers who will send us actionable IOIs,” Misra told theTRADEnews.com. “We will consolidate these into real liquidity and execute against them, rather than pinging venues speculatively in the hope of a fill.”
Misra also contends that Chi-Vision will provide benefits over onward routing services offered by other venues, including the London Stock Exchange’s Baikal dark liquidity routing function, which he argues is little different from the connections and services a traditional agency broker provides. “We see no advantage in just linking, and sending orders, to other execution venues because the sell-side already does this very well,” said Misra.
Chi-X has plans to add more ELPs to the service, which will vary in the type of order flow they provide. At least one more broker is expected to join by the end of this quarter. The sell-side has shown a lot of interest in the product, claims Misra, because of the potential liquidity on offer.
“By becoming ELPs, the sell-side will have the chance to interact with residual orders from Chi-X they might not normally see,” he said. “Equally, in times of cost-cutting, they may not have the level of broker-to-broker electronic connectivity we are aiming for with Chi-Vision.”
The service will cost a flat rate of 0.3 basis points per execution. Orders will trade at the European best bid and offer or primary best bid and offer, in accordance with the external liquidity providers. All trades will be centrally cleared by Chi-X’s existing central counterparty (CCP) EMCF initially, with SIX x-clear and LCH.Clearnet to be added by Q3 2009.
Initiatives in the US that use external liquidity providers, such as Direct Edge’s ELP programme, have come under fire for allowing a closed group of users access to orders before the rest of the market. However, Chi-Vision will first access Chi-X’s main lit and dark order books before using ELP liquidity.