Liquidnet is demoing its fixed income dark pool to European clients as it prepares for a post-summer launch of the platform.
The trading venue operator, which has made its name by offering block trading in equities, has sought to give the new platform similar functionality to its existing equities pool, while tailoring it to the specifics of the fixed income market.
The bond trading service’s interface works in a similar manner to its equities pool, sweeping blotters for fixed income orders and notifying traders of potential matches.
However, once a match is identified the pool can then apply two additional levels of matching to any negotiation process in order to minimise information leakage, based on price tolerance and size.
If any party to a negotiation does not meet the other’s price tolerance then the negotiation process is automatically brought to a close, and a similar mechanic is in place if minimum order size requirements are not met.
Additionally, once a trade is executed, neither side will have any knowledge of how much of the order remains outstanding. Liquidnet said these various levels of protection for order information will minimise market impact and prevent potential gaming of the pool.
It will also apply many of its rules and anti-gaming measures that are already seen in its equities dark pool, after client feedback suggested adopting a similar ruleset would be beneficial. Clients that perform activities that appear to be aimed purely at gaining information on other users’ orders will be banned from trading in particular bonds for repeat offences.
Pricing information is also available, drawn from IDC and Markit’s indicative fixed income market data to aid traders in determining and appropriate price. This data also feeds a TCA system that is included, which records all negotiation information performed by a trader to be used by compliance.
So far, Liquidnet said it has demoed the platform to over 40 buy-side clients and added that many of its biggest equity clients are also among the largest institutional bond traders in Europe.
It also revealed it eventually wants the platform to become a fully all-to-all service, which would include the sell-side. This would differ from its equity dark pool, which is aimed at institutional investors, however it will apply different rules for sell-side participants.
The platform intends to launch later this year, with larger buy-side clients expected to test and onboard first.