A new trading venue due to launch next year aims to establish a central destination for block trades currently executed manually between sell-side firms.
Squawker, which is regulated by the UK’s Financial Services Authority and plans to launch in Q1 2013, will let investment banks, market makers, agency brokers and prop trading firms trade large positions on a negotiated basis.
According to co-founder and CEO Chris Gregory, Squawker meets a need that the traditional order book model is unable to fulfill.
“Around 10-15% of pan-European order flow is traded between brokers in over-the-counter markets and away from lit and dark electronic order books,” Gregory told theTRADEnews.com. “This type of liquidity is not suited to the small sizes traded on exchanges and multilateral trading facilities (MTFs) but is still ripe for automation and greater efficiency.”
Sell-side participants will use Squawker by advertising their trading interests on the system in the form of indications of interest or actual trades. Squawker then hunts for potential matches in its system and sends out invites to negotiate, without revealing counterparty information or depth of interest to either party.
If the two parties decide to enter into a negotiation, they must first agree on the price they want to trade at – such as at the mid-point, VWAP with or without auction volume or a limit price. The buyer and seller finally agree on volume, with a minimum trade size set by Squawker according to the stock’s average daily volume.
“The system allows the sell-side to control the information it discloses on a step-by-step basis,” said Gregory. “There is no algorithmic trading in Squawker, which completely eliminates the ability for firms to send in small orders and uncover block trading interest.”
Upon launch, Squawker will offer trading in equities, exchange-traded funds and other exchange-traded instruments across 16 European countries. Sell-side firms can connect to the venue using a FIX connection.
Gregory, who formerly worked at software vendor Fidessa’s buy-side focused LatentZero subsidiary, launched Squawker with Christopher Brazier, previously head of UK sales, global execution services at BNP Paribas.
Differentiation in the functionality offered by dark pools is becoming more common as market participants look for greater variety in how they trade with each other.
Turquoise, the London Stock Exchange-owned MTF, adjusted its dark pool in June to size priority matching and introduced random auctions to its dark pool in an effort to attract larger orders. Agency broker CA Cheuvreux launched BLINK MTF in April, which aims to discourage participation from high-frequency trading firms, while Société Générale unveiled Alpha Y, a broker crossing network that prioritises client orders and includes a subset of the broker’s internal flow.