New broker pools make early grab for market share

Data from trading venues recently launched by brokers suggest that liquidity remains extremely mobile in both the US and Europe.
By None

New data from trading venues recently launched by brokers suggest that liquidity remains extremely mobile in both the US and Europe.

Light Pool, the displayed crossing network launched in the US by Credit Suisse, recently recorded a record high daily volume of 46 million shares, although the firm admits that most days see trading volumes around half that.

Designed to provide a market-led system that prevents long-only traders from being disadvantaged by high-frequency trading (HFT), Light Pool uses several features that aim to limit participation by opportunistic short-term traders, the main one being cost of execution.

Fees on Light Pool are determined by participant type. Initially classed as ”neutral', market participants are assessed using quantitative analysis to measure their impact on short-term stock price movements. Traders that trade aggressively and consistently focus on short-term advantage are charged more, whereas those that do not are classed as ”contributors' and receive rebates for trading. This pricing policy deliberately makes popular HFT strategies such as latency arbitrage largely unprofitable.

Credit Suisse has no formal plans for Light Pool beyond the US, as the firm has stated it is “still an experiment in an early stage”.

US dark pool volumes reached a record high in April, with some 18 non-displayed venues accounting for 13.19% of US consolidated equity volume that month, up from 12.26% in March, according to Rosenblatt Securities. In its monthly report on US dark pool trading, the broker found that Credit Suisse’s Crossfinder was the largest bank-owned dark pool in May, trading 175.4 million shares daily, with Goldman Sachs’ SIGMA X dark pool second largest with an ADV of 124.1 million shares. US dark pools currently operate under the threat of the introduction of a ”trade-at' rule which would require operators to either offer significant price improvement or route orders to lit venues.

Meanwhile in Europe, Goldman Sachs' dark multilateral trading facility, Sigma X MTF, has started reporting trading volumes after launching its pilot phase in April. According to the broker, trading volumes are averaging between US$50 million to US$75 million per day.

Sigma X MTF, operated separately from the firm's Sigma broker crossing network, allows users to peg execution at the mid price but also at the best bid and best offer of the primary market. It is intended as an explicitly ‘non-discretionary’ venue, as opposed to a bilateral crossing network. Sigma X MTF is hosted on exchange group NYSE Euronext’s Universal Trading Platform and housed in the group’s UK data centre in Basildon to ease access.

Sigma X MTF is now included in the dark MTF volume statistics supplied by Thomson Reuters' European Share Market Reporter, and achieved a 5.45% market share on 1 July.