Goldman Sachs, Morgan Stanley and UBS, three of the world’s biggest brokers, have granted each other reciprocal access to their respective internal crossing engines in Europe – SIGMA X, MS POOL and UBS-PIN.
The deal comes a year after the three banks allowed each other to access their dark pools in the US.
Under the European agreement, each bank will become an algorithmic client of the other two. For example, Goldman Sachs would use UBS algorithms to gain access to UBS-PIN.
As in the US, the banks have forged the links to ease clients’ access to a wider range of liquidity. While technologies such as smart order routers permit clients to access displayed venues and independent crossing networks, brokers generally only allow access to their internal liquidity pools through their own algorithms. This means clients need to access each broker pool individually.
However, the agreement means that a client could send an order to Goldman Sachs, but also have access to the liquidity in Morgan Stanley’s and UBS’s internal pools.
It is understood that the three banks have not made any commitments about how much order flow they will send to one another, but will distribute orders to where they think they are most likely to get filled – essentially treating the other banks’ pools as they do any other external trading destination.
Links of this kind have been few and far between in Europe so far, despite the buy-side’s repeated calls for more connections between broker pools. A notable exception to this trend was the connection established between Credit Suisse’s CrossFinder internal pool and agency broker Instinet’s BlockMatch facility last July.
Other efforts to aggregate brokers’ internal liquidity flows are underway. Pan-European multilateral trading facility Nasdaq OMX Europe is launching its dark pool, NEURO Dark, on Monday, which will offer onward routing to both independent and broker dark pools. The London Stock Exchange plans to launch its dark pool, Baikal, in June, which will offer similar routing functionality and aims to be a liquidity.