NEURO Dark, the new dark pool from pan-European MTF Nasdaq OMX Europe, may become the first equities trading venue to use a consolidated European best bid and offer as a reference price rather than a primary exchange price benchmark.
The platform, which plans to launch on 27 April, will use a reference price waiver to exempt it from publishing pre-trade data under MiFID. This will allow it to trade dark orders of any size.
“We are still in discussions with firms about whether they want NEURO Dark to use the best bid and offer on primary exchanges or a consolidated best bid and offer as the reference price,” Charlotte Crosswell, president of Nasdaq OMX Europe, told theTRADEnews.com. “We have already created a European best bid and offer by taking data feeds from all the other MTFs.”
NEURO Dark will trade around 800 of the most actively-traded European blue-chip stocks, and use the same INET trading technology as Nasdaq OMX Europe. Its launch schedule is subject to discussions with UK financial regulator the Financial Services Authority.
The pool will allow orders to be pegged either to the mid-point of the reference best bid and offer or to the same or opposite side of the best bid and offer. “You have to be very careful about how these orders interact with one another,” said Crosswell. More details will be released prior to launch.
The platform will also offer an internalised order type, which will allow members to effectively execute against their own internal flow on the platform. Users will be able to choose either only to interact with internal flow, or to cross with internal flow first and execute any unmatched portion of the order in the main dark pool.
A key feature of NEURO Dark will be its onward routing capability, which it shares with Nasdaq OMX Europe’s displayed platform. “We are in discussions with a number of dark pools about them potentially routing their orders to us if they are unexecuted, and vice-versa,” said Crosswell. “We are discussing whether this will be done using indications of interest, or whether we ping the other pools’ books.” The routing arrangements are likely to vary from pool to pool, she added.
Because NEURO Dark will use MiFID’s reference price waiver, it cannot interact with or route to displayed venues. Dark orders that interact with displayed order books must use the large-in-scale waiver, which requires exempt orders to account for a particular percentage of a stock’s daily turnover and market capitalisation. Equally, displayed order books cannot use the reference price waiver to exempt orders from pre-trade transparency.
For this reason, NEURO Dark will operate as a separate platform to the Nasdaq OMX Europe MTF and orders in the dark pool will not interact with those on the lit platform.
“Because we are limited to the large-in-scale dark orders on the Nasdaq OMX Europe lit book, it was always our plan to launch a separate dark pool at some point,” said Crosswell. “Quite a lot of dark pools have been announced or launched recently that focus on block-size or large-in-scale orders. We didn’t want to limit ourselves to that size of order because we already offer that on the lit pool.”