The dark mid-point book operated by multilateral trading facility (MTF) Turquoise has overtaken Chi-Delta as the biggest MTF-owned dark pool in Europe this week after fears of information leakage gripped investors last Thursday.
On 20 May, volumes in both Chi-X Europe’s Chi-Delta dark pool and BATS Europe’s dark pool sank as traders were alerted to potential information leakage from the high-speed data feeds offered by some trading venues. The claim was made in a white paper released by US agency brokerage Themis Trading on 11 May, and subsequently reported in the US financial press, entitled ‘Data Theft On Wall Street’. Turquoise released a response to the paper on 19 May saying that it had taken steps to make its dark pool “safer” and did not disseminate any information relating to trades executed in its dark pool. Turquoise is 51% owned by the London Stock Exchange, with the remaining stakes shared between 12 brokers including the platform’s seven founders.
According to its own figures, BATS Europe’s dark pool traded €66.2 million last Thursday, compared to an average for the three previous days of €73.78 million, while Chi-Delta, the dark pool operated by Chi-X Europe, traded €109.5 million, having averaged €269.5 million from Monday to Wednesday last week. Turquoise appeared to pick up the pieces, trading €307.31 million in its dark mid-point book on Thursday, compared to a previous three-day average of €134.1 million.
Chi-X and BATS sent notices to traders on Thursday saying they planned to amend their data feeds so that information on dark executions would be eliminated. Both trading venues had updated their systems by the start of trading this week.
While the fixes have started to restore investor confidence in dark trading, Turquoise has retained its position as the largest MTF-owned dark pool, overtaking Chi-Delta, which has been the biggest dark pool since the start of 2010, according to data from Thomson Reuters.
On Friday 21 May, Turquoise traded €302.3 million in the dark compared with BATS’ €54.2 million and Chi-Delta’s €156.9 million. Trading volumes in all three dived on Monday – with Turquoise trading €128 million, BATS executing €29.92 million and Chi-Delta reporting €86.8 million – most likely because of a holiday across many European countries – but recovered to more typical levels on Tuesday. Turquoise maintained its lead position, trading €294.6 million despite Chi-Delta rebounding to €229.2 million and BATS rising to €61.8 million on Tuesday.
“From the outset, we have made it clear that we want to differentiate our mid-point book so it is a safer place for brokers to trade institutional client orders,” Natan Tiefenbrun, commercial director, Turquoise, told theTRADEnews.com. “We are pleased that recent volumes have proved that the market likes the way we have positioned our dark pool.”
The Themis paper noted that high-speed data feeds from some US exchanges reveal dark pool trade information such as buy and sell indicators and cumulative executions of hidden orders, which could be used by high-frequency traders to exploit large institutional orders.
However, one European broker described the buy-side response to the Themis paper as a “bizarre overreaction”, adding that there was “no proof that anyone is systematically exploiting this data in the US, let alone in Europe”.