The London Stock Exchange and investment bank Lehman Brothers have joined forces to create a pan-European multilateral trading facility for non-displayed orders. The MTF, called Baikal, will combine a dark liquidity pool with liquidity-seeking algorithms.
Baikal will be a broker-neutral venue operated by the LSE. It will offer access to securities in 14 countries and provide smart order routing to liquidity in at least 22 trading venues. It will also comprise liquidity-seeking algorithmic strategies – which the firms say can be tailored to customers’ requirements and risk tolerance – as well as anti-gaming controls and surveillance tools.
Real-time post-trade reporting will be offered through LSE’s Infolect data feed. The MTF will also comprise a pan-European clearing and settlement solution with aggregated trade booking of Baikal-matched and smart-order-routed business.
A joint statement said that a strategic advisory committee and working groups would be established by Q3 2008 to deliver “innovative solutions that appeal to all types of market participants”. Baikal will be launched in Q1 2009, subject to regulatory approval and will operate as an independent, standalone business.
Initially a joint venture between the London Stock Exchange and Lehman Brothers, discussions have already started on the economic participation of buy-side and sell-side firms. The LSE’s CEO, Clara Furse, will chair the new business, and other roles will be filled by LSE and Lehman staff as well as via external recruitment. Baikal is named after Lake Baikal in southern Siberia, the deepest lake in the world and the largest freshwater lake in the world by volume.
Baikal will compete directly against Turquoise, the MTF due to be launched in September this year by a consortium of nine investment banks. Turquoise will offer both public and non-displayed liquidity pools. Lehman is not part of the Turquoise consortium.
“Baikal provides an exciting opportunity for the market to transact certain types of business in European equities with the confidence of total pre-trade anonymity, alongside the efficient price formation of the electronic order books of exchanges, where the majority of equities across Europe are traded,” said Furse in a statement.
She added that the MTF will draw on Lehman Brothers’ algorithmic expertise and investment in new anti-gaming technology. “In addition, we actively welcome the participation of other members of the sell-side as well as buy-side community in making Baikal a success in bringing down the cost of investment in European equities,” she said.