Northern European exchange provider Nasdaq OMX Nordic has overhauled its dark pool to discourage high-frequency trading (HFT) and broaden the liquidity available in it.
Nordic@Mid has removed the 500,000 Swedish kroner minimum order size obligation and will now match trades on a price-size, rather than a price-time, priority basis.
In addition, all users of the dark pool must connect using the FIX message protocol, which will discourage HFT firms that generally like to connect to markets using specialised low-latency connectivity solutions. “Our dark pool hadn’t really taken off since launch, so we consulted with both buy- and sell-side firms to see how we could improve the offering,” Björn Sibbern, head of Nordic equities at Nasdaq OMX, told theTRADEnews.com. “Our members are now more technically ready to connect to the dark pool than they were just over a year ago.”
On its first day of trading (28 May), the new Nordic@Mid pool accounted for 0.5% of all Swedish equity trading, and 13% of all dark trading in Swedish stocks, making it the third biggest dark pool for the country’s equities.
“There are many dark pools around Europe, but one of the key things about Nordic@Mid, is that it’s a dark pool built in conjunction with the Nordic trading community, with much of flow being derived from local firms,” said Sibbern. “We have aimed to eliminate the fear of being pinged by HFT firms through the size priority and the FIX connectivity requirement.”
While encouraged by further differentiation between European dark pools, Mark Goodman, head of quantitative electronic services at Société Générale Corporate and Investment Banking, said further analysis would need to be done on the new Nordic dark pool before he opted to send client flow there.
“Exchanges and multilateral trading facilities cannot decide on the participants that trade in their pool, which makes it difficult to assume that dark pool offerings will be made unattractive for HFTs based only on structural factors,” said Goodman. “Other dark pools have tried to discourage HFT, but have inadvertently made it attractive to these types of traders in other ways.”
Nordic@Mid was originally launched by Nasdaq OMX on 15 November 2010 for non-displayed trading in Swedish, Finnish and Danish stocks. The venue matches orders at the mid-point price of the primary exchange using MiFID’s reference price waiver.
Nasdaq OMX plans to extend the new functionality of its dark pool to Denmark and Finland after further consultations with its members in each country.