UPDATE: Turquoise to aggregate broker dark pools only

Equity trading platform Turquoise will introduce a pan-European dark pool aggregation service in the first quarter of 2009, subject to regulatory approval, but only intends to connect broker-backed dark pools.
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Equity trading platform Turquoise will introduce a pan-European dark pool aggregation service in the first quarter of 2009, subject to regulatory approval, but only intends to connect broker-backed dark pools.

Turquoise said the new service will route orders to “a number of the largest bank-operated dark pools” from launch to secure the required liquidity and crossing rates to execute trades at minimal market impact and cost.

“We plan to link to a wider network than the pools operated by our investor banks and have some strong indications of interest already,” Eli Lederman, CEO, Turquoise, told thetradenews.com.

Turquoise, which launched in August 2008 and is owned by a consortium of nine investment banks, already offers dark pool functionality in addition to its displayed order book and currently provides a dark order type for more than 1500 European stocks. While the operations of the new service are subject to regulatory approval, Turquoise expects its order type to be one of venues to which it would route orders. But non-broker dark pools are not regarded as critical to gaining critical mass, according to Lederrnan.

“There may no longer be a first-mover advantage in the dark pool market, but there will be an advantage to the first aggregation service to achieve critical mass,” he said. “We’re well placed because we already have an extensive connected broker network, a track record in developing trading functionality and a commitment to the institutional market.”

Dark pools account for around 12% of all equity order flow in the US and volumes have grown in Europe due to the appeal to institutional investors of the opportunity to cross trades without revealing size or price in public order books. Crossing networks such as ITG Posit and Liquidnet have operated in Europe for some time, but these have been joined by a flood of dark pools launched by brokers and exchange groups since the introduction of MiFID in November 2007.

The London Stock Exchange is due to launch its own dark liquidity aggregation service in Q1 2009. Originally planned as a joint venture with Lehman Brothers, the collapsed US investment bank, Baikal is intended to aggregate flow from brokers’ internal dark pools, buy-side traders and other liquidity venues.

Turquoise said its new service was developed in consultation with the operators of leading European dark pools and would act as a complement to its existing dark order type. “The dark pool aggregation service represents a significant addition to Turquoise’s existing business. We expect that it will attract interest across the European trading community,” said Lederman.

Turquoise said that its dark pool aggregation service will enforce a large minimum order size related to each instrument’s liquidity.

Under MiFID’s ‘large in size’ stipulations, crossing networks that use displayed venues for price reference can waive the directive’s requirement to publish pre-trade data. But dark pools whose prices are not based on the primary markets are required to have minimum order sizes for their pools, based on the average daily volume and market capitalisation of stock, as defined by the Committee of European Securities Regulators (CESR).

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