The news that Goldman Sachs, Morgan Stanley and UBS have struck bilateral agreements to grant each other’s clients access to their dark pools could prompt more dark pool links in the US and Europe.
When asked whether the deal could cause other banks to consider similar initiatives, Andrew Silverman, managing director, Morgan Stanley Electronic Trading, told theTRADEnews.com, “Absolutely. The number of dark pool venues – at 40-plus – is at or near its apex. We will start to see consolidation from here on in.”
The deal is the first of its kind for both UBS and Goldman Sachs. Morgan Stanley declined to comment on whether it had further such arrangements, although theTRADEnews.com understands it has other smaller-scale links.
The three banks said they may consider further link-ups with other dark pools, but were reluctant to give firm details. Greg Tusar, managing director, Goldman Sachs Electronic Trading, commented, “We do expect there to be more such agreements in the future, but not in the short term.”
There may also be some scope for similar liquidity-sharing deals in Europe. “It is fair to say we are having high-level conversations – it is an ongoing process,” said Goldman Sachs’ Tusar. Silverman at Morgan Stanley added, “We always look at business and regional needs and we are open to exploring this in Europe, but these agreements are US-based.” The deal announced on Tuesday was US-only, but many banks, including Goldman Sachs and UBS, operate dark pools in Europe.
The US equity trading market has been fragmented for a number of years, but details of links between brokers’ dark pools have rarely come to light because banks have been highly selective about any such agreements. “An internal pool is one of the most strategic assets a firm has,” explains Tusar. “For that reason, companies are being very deliberate and thoughtful about how and when people get access to it.”
And they are likely to continue to be cautious. Will Sterling, managing director, UBS Electronic Trading, said his firm has been very careful about the dark pools it connects to. It looks for anonymity, size and also quality of order flow in potential partner pools. Referring to Goldman Sachs and Morgan Stanley, he said, “We found a couple of partners of a similar mind. I don’t think that’s common.” He adds, “I wouldn’t rule out further agreements, but it took a while to find two partners with all the right criteria. There are not that many other broker-dealer pools that have the size and other criteria we look for.”
Goldman Sachs, Morgan Stanley and UBS signed their agreements on Tuesday in a bid to make it easier for their buy-side clients to access liquidity.
“The execution landscape has become very fragmented over a number of years, to the frustration of the buy-side,” said Silverman. “We wanted to start to connect this fragmented marketplace for our customers to access liquidity in a more efficient manner.
The arrangements allow orders generated by the firms’ execution algorithms to interact with the US equity liquidity found in Goldman Sachs’ SIGMA X, Morgan Stanley’s MS POOL and UBS’ PIN ATS.
The news closely follows the announcement that Credit Suisse and BNY Convergex have set up a link between their respective US dark pools – CrossFinder and VortEx. As a result of this agreement, Credit Suisse now connects to 26 US dark pools.