The Big Interview: Robert Barnes

Robert Barnes, CEO at the London Stock Exchange's Turquoise, speaks with Hayley McDowell about what has happened since the Turquoise Plato rebrand, the impacts of MiFID II on block trading and what’s next for Turquoise.

In September this year, the London Stock Exchange’s Turquoise rebranded its block trading and uncross services under the new name ‘Turquoise Plato’, as part of an agreement with Plato Partnership.

Chief executive officer at Turquoise, Robert Barnes, explained at the time the new Turquoise Plato service offers the industry a “large in scale electric execution channel that works.”

The TRADE speaks with Barnes about what has happened since the rebrand, the impacts of MiFID II on block trading and what’s next for Turquoise   

Hayley McDowell: What has happened since the Turquoise Plato launch in September?  

Robert Barnes: Following the announcement of the signing of the cooperation agreement with Plato Partnership on 6 September this year, we saw a surge in activity. This is noticeable relative to the extraordinary month of June following the EU referendum result. The consequences of the referendum were very substantial in terms of activity. In fact for most order books in Europe it was an all-time record of activity and it was no different for the newly rebranded Turquoise Plato Block Discovery. Resilience for large-in-scale trading on that remarkable economic day was a positive case study for us. In fact, the proportion of value traded above large-in-scale actually increased 58% for the month of June.

While every other order book mechanism has seen the total activity decline since June this year, we are very pleased - and thank our customers - that every month since June, have been above June’s activity levels.

This growth surge continues: October 2016 value traded by Turquoise Plato Block Discovery is more than double September 2016, more than 10x October 2015.

The announcement of the Turquoise Plato Partnership cooperation agreement was an important one because it is the first time buy-side, sell-side, and market operator come together to shape excellence in the world of market structure.

The partnership helped us focus attention on Turquoise Plato Block Discovery and we agreed to rebrand all of the Turquoise midpoint services under Turquoise Plato, including Turquoise Block Discovery and Turquoise Uncross. We have seen more members signing up and activating the service and then getting a better result on a continuous basis, which is the very definition of MiFID best execution.

For the first time the buy-side and the sell-side and a market operator are coming together to innovate to deliver a better result for the end investor, which I think is very positive and encouraging for the future. I have calculated of the €6 billion that has traded in the two years since launch, a third of that happened in September following the announcement with Plato Partnership.

The innovation of the Turquoise Plato Block Discovery service was a mechanism to allow users to provide a block indication and if there is a potential match, there is an order submission request requiring an automated firm-up.

This model introduces a rich reputational scoring mechanism. When the firm up is requested, over 90% of customers are consistently firming-up in time and in full size, which is an industry leading statistic.

We have very high firm-up rates into the Turquoise Plato Uncross – the execution mechanism – and low reversion rates, the consequence of which is higher average trade size.  The average trade size on dark pools is roughly €10,000 per trade, but in Turquoise Plato block discovery since its launch it has been about €260,000 per trade, so 26 times the industry average.

HM: What do you think the effects of MiFID II will be on Turquoise Plato and block trading as a whole?

RB: Anticipating the MiFID II double volume caps is a challenge, but more importantly, the trend we see is of increasing demand from the buy-side looking to outperform benchmarks by trading blocks.

The buy-side wants to have an order book mechanism that facilitates this large size and has open access, multilateral and is widely accessible to the market. The reason why this is such a challenge is because in traditional order books, if you put together one large buyer order and one small selling order, when they interact they will produce a small trade size.

Interestingly enough that has grown since September to €300,000 per trade on average. We’ve had many examples of multi-million individual ticket sizes and currently our largest trade size is over €7 million

More than half of all of the activity that is matching as a result of Turquoise Plato Block Discovery is already 100% above the European Securities and Markets Authority’s (ESMA) large-in-scale threshold.

Under MiFID II, if a venue receives an order over this threshold for that stock, then it can continue to benefit from potential price improvements and mid-point matching.

Today, most continuous dark pools will struggle to get more than 1% of their activity above large-in-scale. The fact that already more than half of Turquoise Plato Block Discovery’s activity is above the 100% large-in-scale gives it a very differentiated profile.

In creating Turquoise Plato Block Discovery, we are adding an extra execution channel designed specifically in anticipation all of the MiFID II reporting, tagging and flagging requirements, through the same physical connection into the London data centre as accessing London Stock Exchange or the Turquoise mid-point book. The advantage is the entire market can participate on an anonymous, broker neutral basis to allow investors to get their business done in a large-in-scale electronic mechanism that works.

HM: What were your thoughts on the recent launches of European large-in-scale platforms?

RB: We love competition because it keeps us sharp. We love to engage with partners like the buy-side and sell-side because our whole ethos is about integrity, innovation, partnership and excellence. We are aiming to be the European trading venue of choice.

The Turquoise Plato mechanism is a large-in-scale execution channel that is working. We are listening and implementing innovation and from our view, innovation is about more than just ideas, it’s about execution. 

HM: What’s next for Turquoise?

RB: We shall continue our approach which has been to raise our visibility, to widen our membership and to innovate with customers.

In an economic environment where developed country interest rates are near zero or negative, investors search for yield. The where can include emerging markets and mid and small caps also in developed.

Our stock universe has broader geography than pan-European platforms that focus only on developed securities. The same straight through process Turquoise offers in developed stocks can be used to access also names from emerging countries like Czech Republic, Hungary and Poland. In October 2016,  - the first time for any broker neutral venue - we added Turquoise Plato mid-point matching for emerging equities of Czech Republic and Hungary.

Why does this matter? Whereas developed UK names may trade with approximately 5 basis point bid offer spreads, blue chips of Czech Republic and Hungary can vary beyond 10 to 30bps plus. Offering Turquoise Plato in these names raises visibility of the region to investors and helps them get business done.

The other area we continue to look out for is widening our stock universe in demand from clients, including mid and small caps. Three years ago when I arrived as CEO of Turquoise, Turquoise was executing around 1,600 different symbols in its stock universe every month, now we are executing well over 2,600 stock symbols. Why does this matter? Because approximately 80% of all value traded on European order books is in the top 300 blue chips, and investors are able to come to Turquoise to get their business done.