Liquidnet offers dark aggregation algo to the buy-side

Block crossing venue provider Liquidnet has begun the European rollout of Liquidnet Dark, its dark aggregation algorithm, to buy-side clients after 18 months of testing.

Block crossing venue provider Liquidnet has begun the European rollout of Liquidnet Dark, its dark aggregation algorithm, to buy-side clients after 18 months of testing.

The strategy offers institutional investors access to liquidity in 26 European dark pools – both dark multilateral trading facilities (MTFs) and broker crossing networks (BCNs) – while simultaneously seeking matches for larger blocks in Liquidnet’s core trading network.

“Liquidnet Dark allows our clients to leverage our block liquidity and find additional liquidity in other types of dark pool, through a unique algorithmic offering, aggregated on one ticket,” Per Lovén, head of international corporate strategy, Liquidnet, told, adding that the algorithm allows users to tap into 90% of European dark trading venues. “While the algo in some ways compete head on with similar offerings from bulge-bracket firms, the ability to maintain full exposure to Liquidnet’s block flow is something no one else can offer.”

Users of the algo can vary their interaction with the venues according to market conditions. For instance, a buy-side trader can choose to trade more aggressively in some venues compared to others depending on the perceived toxicity of a dark pool and the urgency of an order.  

One key differentiator of Liquidnet’s aggregation strategy is its ability to tap into brokers’ internal liquidity. 

Most dark liquidity algos only source liquidity from dark MTFs, which cannot offer discriminatory access. Brokers, on the other hand, have the ability to be more selective on who can participate in their dark pools. According to Lovén, the natural buy-side flow in Liquidnet meant establishing partnerships with broker dark pools was an easy sell.

“As an independent agency provider of block liquidity, many market participants view us as a unique source of liquidity, rather than a direct competitor,” he said. “This has enables us to build a strong access network to all types of non-displayed liquidity pools in a way that many other firms can’t.”

According to data from Thomson Reuters, BCNs accounted for 50.79% of the €28 billion worth of dark trading done in Europe last month. However, the regulatory framework for BCNs is set to change in MiFID II. The revised directive currently proposed to restrict the type of flow BCNs can include and how trades are reported. A final version of MiFID II is expected by 2014 at the earliest.

Liquidnet Dark has been used by a limited number of Liquidnet’s clients for around 18 months, allowing the firm to build up data that can be used to analyse flow in the different types of dark venue it is connected to.

“It’s key for us to ensure that our algorithmic offering is stable and robust. Hence, we focused heavily on internal regression testing of all possible scenarios, and worked with subset of clients optimising performance before releasing to a wider audience” added Lovén.

In the US – where Liquidnet has largely built up a range of algorithmic strategies via its purchase of agency broker Miletus Trading in 2007 – Liquidnet Dark has been available since Q2. Liquidnet also offers participation, average price and implementation shortfall strategies, which, like Liquidnet Dark, can all be used in conjunction with the firm’s block liquidity. The algos are available via a buy-side trader’s Liquidnet desktop application, ITG’s Triton execution management system, and Bloomberg’s EMSX, with other systems to be added subject to client demand.