Agency broker Instinet’s BlockMatch dark pool has added a consolidated pan-European price feed as it reference point for matching trades and now offers buy-side clients more flexibility on the price at which their trades are executed.
The dark MTF, registered with UK regulator the Financial Services Authority since 2007, is the first to match trades at the bid, mid or offer price of a proprietary consolidated European best bid and offer (EBBO).
Most dark pools base execution price on the prevailing mid-point offered on the primary exchange of a stock’s listing, as per one of the pre-trade transparency waivers afforded to trading venues under MiFID.
Instinet first announced its intention to use its own EBBO last December, stating that fragmentation of liquidity meant domestic exchanges gave an increasingly incomplete snapshot of stock prices.
“We now trade over 50% of client flow away from the primary markets, and use a proprietary EBBO for our smart order router and in our execution management system (EMS),” Scott Lesser, head of execution services, Instinet Europe, told theTRADEnews.com. “The natural progression was for us to reflect this in the reference point used by BlockMatch.”
To qualify for inclusion in Instinet’s EBBO, trading venues must have a pan-European market share of over 2.5%. Currently this includes 14 domestic markets and MTFs BATS Chi-X Europe, Turquoise and Nordic-focused Burgundy. The individual stocks traded on qualifying venues are monitored on a real-time basis to ensure they stay above the 2.5% floor. Venue qualification is reviewed quarterly.
The agency broker also offers members of its BlockMatch platform the option to trade at the bid or offer of the EBBO, rather than just the mid. Richard Parsons, head of sales and trading at Instinet Europe, expects the additional price points to lead to more activity in BlockMatch.
“An increase in market share isn’t our sole aim, but we expect trading to increase as clients will have additional opportunities to trade at different price points in a controlled and safe environment,” said Parsons.
Other broker-operated dark pools in Europe, including UBS MTF and Goldman Sachs’ SIGMA X MTF, already offer bid, mid and offer price points but base stock prices on the mid-point displayed on the domestic exchange.
In Janaury, alternative lit and dark trading venues accounted for around a third of European equity trading, according to figures from Thomson Reuters. BlockMatch executed €1.2 billion in equities in February, giving it a 4.27% share of dark MTF trading and a 0.16% share of overall European trading. Lesser said on the week commencing 13 February, BlockMatch enjoyed a record weekly market share of 0.25% pan-European volume.
Access to BlockMatch is afforded to both buy- and sell-side firms through various execution management systems, including the broker’s own Newport 3 EMS, direct FIX connections and Instinet’s smart order router and Execution Experts algorithmic suite.