Pan-European MTF Turquoise is planning to use a consolidated European best bid and offer (EBBO) as the reference price for its new mid-point non-displayed order book, which it plans to launch on 14 April.
The new facility will allow Turquoise members to submit dark orders to the mid-point order book that are smaller than MiFID’s large-in-scale restrictions because it uses MiFID’s reference price waiver. Under the waiver, orders that are pegged to the mid-point of an external reference price – usually the best bid and offer (BBO) on the relevant country’s primary market – are exempt from MiFID’s pre-trade transparency requirements.
“We will initially use the exchange mid and we are waiting on a response regarding the EBBO mid, which is a better reference price in today’s market,” Duncan Higgins, head of client relationship management at Turquoise, told theTRADEnews.com. “The EBBO is only formed by the exchange bid/ask for 30% of the trading day in some markets, so if you are not taking in prices from other venues, you are not getting the true mid.”
Other venues are also looking at using an EBBO as the reference price for dark orders. NEURO Dark, the new reference-waiver dark pool being developed by pan-European MTF Nasdaq OMX Europe for launch on 27 April, is in discussions with members about using EBBO as a reference.
Because Turquoise’s new mid-point dark trading facility uses the reference price waiver, orders submitted to it will not be able to interact with Turquoise’s displayed orders or its large-in-scale dark orders. However, Higgins added, “There are benefits to integration rather than separation of this flow so over time we hope to bring the different order flows together.”
The new service will support minimum acceptable quantities, where users specify the minimum size of orders they are willing to match with. It will also permit users to specify cap and floor price levels.
All trades in the mid-point facility will be subject to immediate post-trade transparency and will be centrally cleared through pan-European clearing house, EuroCCP, which Turquoise uses for all its clearing. Trades in the new facility will be netted with all current Turquoise trades for clearing. The service is already available for customer testing.