Turquoise eyes OTC market

Turquoise, a bank-backed multilateral trading facility that recently put itself up for sale, has said its TQ Lens aggregation service will help it to tap in to the lucrative OTC (over the counter) cash equity market and give sell-side members access to latent liquidity.
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Turquoise, a bank-backed multilateral trading facility that recently put itself up for sale, has said its TQ Lens aggregation service will help it to tap in to the lucrative OTC (over the counter) cash equity market and give sell-side members access to latent liquidity.

“Much of the flow residing with brokers remains isolated, so aggregating this through TQ Lens will increase the amount of liquidity our members can interact with and also increase the crossing rates within the partner brokers,” Duncan Higgins, head of client relationship management, Turquoise, told theTRADEnews.com.

TQ Lens launched in July and currently has seven broker partners comprising CA Cheuvreux, Citadel Securities, Citi, Deutsche Bank, Bank of America Merrill Lynch, Nomura and, most recently, Instinet.

Brokers direct client or proprietary orders to TQ Lens, which decides which liquidity partners to send orders to using algorithms and Turquoise’s own historical data to determine execution certainty and price improvement opportunities.

According to Higgins, developing the service required close co-operation with broking partners to ensure each was comfortable sharing internal liquidity. Pacts between brokers in Europe to share dark pool liquidity are few and far between, with agreements between Credit Suisse and Instinet and a three-way tie up between Goldman Sachs, Morgan Stanley and UBS the only other notable liquidity sharing deals.

“We spent a lot of time working with the brokers when designing the product, making sure the model did not expose them to liquidity they didn’t want to interact with,” said Higgins. “We also invested a lot of time establishing how the liquidity partners would continue to be involved with the ongoing governance of the product.”

Liquidity partners also have the opportunity to be clients of the service and have no restrictions on the amount of flow they are obliged to provide.

The TQ Lens service has two networks: Block, which has access to the Turquoise integrated book plus seven liquidity partners and has a minimum order size of around EUR50,000; and Flow, which has access to four of the broking partners and Turquoise’s integrated book, for smaller orders. Broking clients can specify which network they wish to use for individual orders.

Block executions will be charged at 2.5 basis points, while Flow executions will cost 0.75 bps.

By comparison, Chi-X Europe, a rival multilateral trading facility, recently launched Chi-Vision, a service that routes orders between Chi-X Europe’s lit order book and the Chi-Delta dark book before looking for fills from its liquidity partners Knight Capital and Citadel Securities, with executions charged at 0.3 bps.

Higgins claims that by paying a premium for block-size flow, clients will benefit by trading with like flow.

“The feedback we have got from our members suggests that they do not want to take the risk of their dark orders interacting with all types of flow and will pay a premium to get a better execution quality,” he said.

Turquoise was recently put up for sale, just under a year since its launch last September, with UBS – one of the MTF’s backers – appointed to help it find a buyer. According to news reports, proposals have been sent out to 18 firms, including large exchanges and rival MTFs, with a shortlist of two or three expected by the end of September.

Despite the current speculation over Turquoise’s future, Higgins believes that any potential sale should reassure members that the platform will continue to progress.

“From our members’ perspective, the outcome will mean continuity, with further development of the platform and enhancement of the services we offer,” he said.

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