New Turquoise platform expected to increase HFT flow

Turquoise, the multilateral trading facility owned by the London Stock Exchange, starts trading on its new platform today, and hopes the better technology performance it brings will grow liquidity on its order book.
By None

Turquoise, the multilateral trading facility (MTF) owned by the London Stock Exchange (LSE), starts trading on its new platform today, and hopes the better technology performance it brings will grow liquidity on its order book.

The new trading platform, Millennium Exchange, is the culmination of a year's work by the LSE Group after it purchased Sri Lanka-based technology firm MillenniumIT in September 2009 for US$30 million.

“We expect the new platform to be among the fastest in Europe, but we will not know the exact latency measurements until customers are fully up and running,” Natan Tiefenbrun, commercial director at Turquoise, told “We have also added significant capacity that means we can handle three times as much volume as the best trading day we have ever had on Turquoise.”

The new platform is also expected to result in an increase in the level of high-frequency trading flow seen on the venue, which is not considered to be as prevalent on Turquoise as on rival MTFs BATS Europe and Chi-X Europe.

“The move to Millennium is the pinnacle of the new Turquoise as it begins to embrace high-frequency trading. Without a doubt, we expect a tremendous pick up of flow from these types of clients and for Turquoise to pick up market share,” comments Andrew Bowley, head of electronic trading product management at Nomura.

Bowley adds that while MTFs placed a lot of emphasis in developing robust, stable platforms and establishing solid relationships with technology partners when they were launched, few could have predicted the intense competition to have the fastest matching engine that soon ensued. This has meant that many trading platforms that were built for purpose when MiFID was introduced have quickly become outdated.

As well as increased participation from high-frequency traders, Tiefenbrun also predicts that the faster matching engine will benefit more traditional market participants.

“Lower latency and higher throughput means members can enter, amend and cancel orders more quickly, and thus better manage their risk exposure. This will encourage tighter spreads, attracting more liquidity and improving the quality of our market,” he said.

Another advantage for the MTF's technology switch will be the synergies created by moving to the same data centre used by the LSE.

“We haven't seen demand from clients for co-location and high speed linkage with Turquoise's data centre compared to other MTFs,” said Bowley. “By being located in the same data centre as the LSE we will automatically have co-location access to Turquoise and intend to make use of it.”

Turquoise currently has around 60 trading members, compared to the LSE's 400-plus members.

Other improvements to Turquoise will be to its mid-point dark book, where it claims to have beefed up anti-gaming controls and introduced well-formed market checks, which will ensure the reference prices used for execution are based on “trustworthy” data. In addition, the introduction of a random periodic auction will help trading participants to avoid high-frequency flow. Traders can choose to only take part in the random auction and not continuous trading, where there is likely to be a higher proportion of high-speed trading.

“There has been a lot of talk about the trading activity in mid-point dark books, the types of trader in them and whether they are ”safe',” says Tiefenbrun. “Turquoise has been a big beneficiary compared to other MTF-owned dark pools and we hope the changes from the Millennium platform will be another positive differentiator.”

During May concerns over the post-trade data disseminated by the dark pools operated by MTFs Chi-X Europe and BATS Europe led to a steep decline in their use by European market participants. At the time, Turquoise moved quickly to assure its members that its dark pool did not report potential sensitive information.

Despite taking swift action to allay buy-side fears of information leakage, the market share of BATS Europe's dark pool and Chi-X's Chi-Delta continued to decline. In September, Turquoise was the largest dark MTF, accounting for 26.3% of dark trading, compared to 23.5% for Chi-Delta and 4.6% for BATS' dark pool.