Liquidnet has handed over control of order and data transparency to its members to put them in charge of their execution.
The block-trading specialist has recently completed the rollout of its Transparency Dashboard to its clients, citing growing demand among institutional investors to gain a full insight into how their order data is used by the sell-side.
“We saw a need for greater transparency over how sensitive client orders and data is handled by the sell-side and wanted to pioneer a solution to give clients control,” Per Lovén, head of international corporate strategy at Liquidnet Europe, told theTRADEnews.com.
Last year, Liquidnet was investigated by the SEC in the US due to the way some data was being used internally and decided to reevaluate the way client information should be controlled. “After the investigation into the way we used data internally in the US, we learned lessons about how we can better control the dissemination of information our clients trust us with.”
The dashboard itself is fairly simple, providing clients with a range of tick boxes split between order handling and data, which enable them to choose where orders will be exposed and where their trading data is displayed and how Liquidnet is able to use it internally.
Members have been onboarding since late 2013 with the all 740 of Liquidnet’s institutional clients set up by July this year.
“Every one of our member firms has a transparency control page they can log into at any time to change what liquidity they interact with and how their post-trade data is used,” added Lovén.
One of the most significant features of the system, according to Lovén, is that it will not presuppose that members want to interact with everything it can offer, but rather would give them that choice.
“We’ve chosen to do this on an opt-in basis, which is not always the norm. Often when a broker takes an order they will aim to fill it with all accessible liquidity. We believe members would prefer to start with a higher quality of liquidity to interact with and then extend this if they wish,” he explained.
The move is reflective of a broader trend among asset managers to demand a much higher level of transparency in what brokers do with their orders. Concern has been growing for a while but has been further boosted by the publication of Michael Lewis’ ‘Flash Boys’ easier this year, which lifted the lid on the effect high-frequency trading was having on markets, and further exacerbated by an New York attorney general allegation that Barclays has misled investors over who was present in its US dark pool. Buy-siders are under increased pressure from their clients to reveal how orders are being treated and what steps are being taken to minimise exposure to toxic market participants.
Industry message standards body FIX Trading Community is about to publish its latest standards for Tag 30, which will add a venue audit trail to FIX messages, enabling the buy-side to better track their exposure.
“The buy-side is asking in-depth questions about how their orders are being treated. We give them a high level of choice as well as having all of this information in real-time at their fingertips,” added Lovén.