The order book segment of the London Stock Exchange’s (LSE) Baikal non-displayed trading and liquidity aggregation service will launch as expected in November despite the exchange’s merger discussions with multilateral trading facility (MTF) Turquoise.
However, the deal will delay connectivity to the platform for firms who have existing connections to Turquoise, according to a Baikal spokesman.
“The technical launch of the Baikal Order Book is going ahead as planned,” the spokesman told theTRADEnews.com. “The only exception is for clients that have existing connectivity to Turquoise, where we are waiting for the outcome of the talks with the London Stock Exchange. Depending on the outcome, they may be able to use their existing Turquoise connections to link to the Baikal Order Book, which would be a lower cost option.”
Baikal, which, like Turquoise, is registered as an MTF, launched a smart order routing service at the end of June. Customer testing of the Baikal Order Book began in September.
The LSE revealed on 1 October that it had entered talks with Turquoise, currently owned by nine investment banks, which may result in a transaction. As Turquoise offers similar functionality to that proposed by Baikal, such as a mid-point-matching dark order book and a liquidity aggregation service, there has been speculation about which parts of the two MTFs would be abandoned if they were merged.
It is still unclear how much of Baikal’s functionality would survive if combined with Turquoise. However, the spokesman contended that the Baikal Order Book’s proposed features have been well received by traders.
“The very strong message we are getting is that the Baikal Order Book model and the order protection it affords is very appealing to the buy-side, albeit delivered through the sell-side,” he said. Baikal’s functionality will not allow buy-side traders to trade directly on its order book.
The Baikal Order Book will have two matching modes: random periodic mid-point matching and continuous trading. It also provides anti-gaming logic and enables participants to control the type of flow they interact with.
The LSE’s proposed purchase of Turquoise has raised some eyebrows due to the amount of overlap with Baikal. Potential motives for the deal include the exchange’s desire to strengthen relationships with Turquoise’s owners – also big LSE clients – who established the MTF out of frustration with the exchange’s trading fees. LSE CEO Xavier Rolet has made improving broker relations a cornerstone of his strategy.
Other attractions are Turquoise’s pan-European trading capabilities and ready-made dark trading functionality that has not yet been built into Baikal, such as the TQ Lens service that aggregates liquidity from seven participating brokers’ internal crossing networks.
Turquoise’s nine investors are BNP Paribas, Citi, Credit Suisse, Deutsche Bank, Goldman Sachs, Bank of America Merrill Lynch, Morgan Stanley, Société Générale Corporate & Investment Banking and UBS.