Member brokers of Turquoise, the pan-European multilateral trading facility that started trading of all its stocks and markets last week, have been steadily increasing their use of the platform over the past week. But some are still exercising caution about posting orders in its dark pool.
“At this moment we are not systematically posting to the dark book,” Christopher McConville, executive director, direct execution services at investment bank UBS, told theTRADEnews.com. “This is a purposeful decision we have made, and we take that stand on every new venue that comes along. Likewise we periodically review existing venues connected to ensure our strategy is right for our client base.”
He added, “With Turquoise, we are sweeping and posting to the lit book but we are still watching the flow and seeing how the market evolves. With all new venues – for example Chi-X, Euro Millennium and Turquoise – we consider carefully how to interact with them, especially in their early stages.”
Turquoise’s minimum order-size requirements are preventing some brokers from doing large amounts of trading in its dark pool. Turquoise permits orders into the dark pool that are deemed large in size (LIS). This measurement varies by stock depending on its liquidity and market capitalisation.
“The majority of orders we are routing down there are visible,” said Marc Salter, director of electronic execution at investment bank Citi. “We are not doing too much in the dark at the moment – largely because they have got minimum order sizes that you have to post in the dark and, at the moment, it is quite restrictive.”
The LIS restrictions are also limiting brokers’ ability to sweep Turquoise’s dark pool to hunt for liquidity. “I can understand having the LIS restriction on the dark posting side from a MiFID perspective but from a sweeping perspective it would be ideal if Turquoise could reduce that LIS number,” said McConville. “That means that, although it is still less likely I would post in the dark, my algorithm could sweep it for small sizes.” He adds that this would dramatically improve the bank’s chances of trading in Turquoise’s dark book algorithmically.
Eli Lederman, Turquoise’s CEO, said that developing the dark pool is next on Turquoise’s to-do list after achieving a steady state of growth in the visible order book. “That will mean working with members on their algorithms, direct market access businesses or electronic trading businesses to expose Turquoise functionality to the buy-side in a number of different ways,” he told the TRADEnews.com.
Lederman acknowledged the banks’ comments about trading restrictions in the dark pool, but said the size limits are unlikely to change. Nevertheless, he hinted that further services could be added to Turquoise that would accommodate different needs. “We are thinking about other things we can do that would be complementary to the model that we’ve implemented, but we continue to have a tremendous amount of faith in the model that we’ve got,” he said.
Turquoise’s soft launch phase has highlighted some areas for improvement, according to Lederman. “We have some tuning to do, and as we do that we expect the performance statistics – which are already very encouraging vis-a-vis the incumbent exchanges in particular – to improve pretty significantly as we make some adjustments.”
On Tuesday, Turquoise reported the total number of completed transaction at 40,000. According to Lederman, Turquoise is now capturing around 1% of market share across its trading footprint.
He stressed that the platform’s matching engine does not need adjusting. “It really is more on the network and network management side of things where we’re focused and where we are going to eliminate a pretty significant chunk of time between us and our members,” he said.
Trading in Turquoise is expected to hit full swing by mid-September, and the platform’s official public launch is scheduled for September 22.