A deal with Deutsche Börse should provide useful additional liquidity to Liquidnet's buy-side members, the institutional trading network has said.
Liquidnet is to launch a block trading service on 29 July via Deutsche Börse's Xetra MidPoint dark pool. It said the service will be beneficial to its buy-side members and to the German exchange's investor community.
Mark Pumfrey, head of EMEA at Liquidnet, said: "Our core offering very much remains our institutional buy-side crossing network. However, we believe the link-ups with SIX Swiss Exchange and now Deutsche Börse, will offer a useful source of additional liquidity for our members."
The link with Deutsche Börse will enable users of Xetra MidPoint to directly trade large blocks with Liquidnet's network of over 700 asset managers with minimum market impact and maximum price improvement.
Liquidnet's own members will be able to interact with the German's exchange's members in a way which will minimise information leakage.
Xetra MidPoint has been struggling to make an impact in the European Dark pool space and in June saw its dark order book volume at just €42.4 million, representing just 0.12% of the €32.1 billion European market, according to figures from Thompson Reuters Equity Market Share Reporter.
Deutsche Börse is likely seeking to bolster the volume of orders executed through Xetra, and Liquidnet said average execution size would be a key metric for measuring the success of the link-up.
Liquidnet has had a similar arrangement with SIX Swiss Exchange since July 2011 and said today's announcement builds on the experience with SIX.
Per Lovén, head of international corporate strategy at Liquidnet, explained: "Working with SIX Swiss Exchange was the first time we had ever done anything like this and we have learned a lot of things from that experience. Having examined how this worked with SIX and getting feedback to our members we have made improvements for our link with Deutsche Börse and have also been able to implement these improvements on the Swiss Exchange."
Since teaming up with Liquidnet, SIX Swiss Exchange has seen its dark order volume grow significantly. In June 2011, just prior to the deal, dark order volume was just €4.5 million, but in June 2013 this had risen to €136.8 million, according to Thompson Reuters. Lovén added that average execution size on SIX is around €0.5m.
Liquidnet said it was examining other opportunities to work with exchanges in Europe to increase the ability of market participants to source block liquidity. "We are looking at expanding this model but are taking a strategic approach," explains Lovén. "We're not lining up a set of liquidity sources and arbitrarily linking them up. Instead we want to look at regional areas where there is demand for investment and where we can find a partner that is willing to cooperate in a way that is beneficial for both the regional investors and our global institutional community."