In a media statement, it said more than 20 brokers now use the service and that the average trade size now stands at €200,000.

The company said that this equated to around 20 times the industry dark pool average, in the statement.

Robert Barnes, chief executive officer of Turquoise, said the business has achieved more trades in more than 900 stock names across 15 primary markets in its first year.

He added: “It is active and working well ahead of MiFID II with half of all Block Indications already above 100% large-in-scale.”

In response to a request from The Trade News, block trading specialist Liquidnet said that its average execution size for the Europe, Middle East and Africa (EMEA) region was £1.5 million for the third quarter of 2015.   

It added that the total principal traded for the third quarter in the region as $34.7 billion.

Mark Pumfrey, head of EMEA at Liquidnet, said: “We have seen strong growth from institutions searching for size and execution quality ahead of MiFID II and have been achieving record levels of trading as a result.”

Turquoise Block Discovery said its most note-worthy trades included €5.39 million in SAB Miller as well as €5.71 million in technology group Hexagon AB.

Turquoise claims Block Discovery is also the first product of its kind to reverse the trend of shrinking trade sizes on electronic orderbooks since they were introduced a decade ago.

By Paul Walsh, staff writer

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Liquidnet has launched its fixed income dark pool, saying it already has 120 buy-side firms on-board.

The dark pool offering, which has been in development since Liquidnet acquired fixed income trading specialist Vega Chi last year, is available to asset managers in the US, Canada and Europe.

More than 120 asset managers have signed up to use the platform, including a significant proportion of the top holders of US corporate bonds.

The platform can trade US and European corporate bonds, emerging market corporate bonds and European convertible bonds.

Seth Merrin, founder and CEO of Liquidnet, said: “The fixed income market has been woefully underserved by technology and, as concerns about a liquidity crunch continue to rise, it needs a transformation.

“With close to 15 years of experience connecting asset managers around the world to solve the unique challenges of institutional equities trading, Liquidnet is uniquely positioned to provide a more efficient trading solution and experience that delivers a critical mass of natural liquidity that minimises information leakage and maximises best execution.”

The platform is being supported through integration with seven major order management system providers to give traders direct connectivity, and a partnership with Interactive Data will provide continuous pricing data to aid in transaction cost analysis.

Liquidnet is one of a number of players vying for attention in fixed income electronic trading, hoping to fill the void left by banks that have been pulling back from the market.

However, intense competition in the market has already claimed one victim, Bondcube, which was wound up in the summer.

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Smaller stocks have had their threshold for the large in scale (LIS) waiver slashed to try and preserve liquidity, the final rules for MiFID II have revealed.

Today, the European Securities and Markets Authority (ESMA) released updated regulatory technical standards for MiFID II, MiFIR and the Central Securities Depository Regulation (CSDR) which give market participants some certainty over what the new regulatory regime will look like.

ESMA has published a 400-page document outlining key aspects of the regulations and explaining its decision making. The draft standards must now be approved by the European Commission, Parliament and Council, though are unlikely to change significantly.

Market participants will benefit from reduced thresholds for the LIS waiver for smaller stocks. The waiver is important to the buy-side in particular as it exempts block trades from the double volume caps on dark pool trading, of 4% for individual venues and 8% for the European market as a whole.

After the initial consultation paper on MiFID II, concerns were raised that the thresholds required to qualify for the LIS waiver were too high and would kill off liquidity in many less-traded stocks.

The latest paper has cut these thresholds in half in many cases. The smallest stocks, those with an average daily volume (ADV) of less than €100,000, now have an LIS threshold of €15,000, down from €30,000 in the initial proposals. Those with ADV of €100,000 to €500,000 will have a threshold of €30,000 down from €60,000.

However, the most liquid shares have seen no reduction in their threshold, with the very largest shares, those that trade €100 million or more per day needing a block worth €650,000 to qualify for the LIS waiver.

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Liquidnet has developed a new way to support execution decisions with its Algo Ranking Model.

The model is intended to enable buy-side traders to rank their execution strategies in real-time based on various criteria, including order characteristics, trading objectives, market conditions and performance targets.

Liquidnet said the Algo Ranking Model will utilise its institutional trading insights and quantitative expertise to turn complex data into information that an be actioned by traders.

It ranks algorithms from Liquidnet’s new suite based on three execution objectives; fill rate, performance and how the two are combined. Traders will receive a set of ranked algo strategies and can then pick the most appropriate for their trading strategy.

Rob Laible, global head of Liquidnet’s Execution & Quantitative Services Group, said: Today’s markets have become increasingly complex and our Members have said that many of the basic algo offerings have become commoditized. The only way to truly capture a performance advantage is by choosing the right strategy based on the conditions of the stock and market at the time of execution.”

Liquidnet said that the model will help traders who are under pressure to make decisions in seconds to choose the algorithm that is best for their order.

Seth Merrin, CEO and founder of Liquidnet, added: “With markets evolving quickly and the volume of data increasing even more rapidly, technology is key to enhancing decision making and productivity.

“We like to think of our Algo Ranking Model as the equivalent of a GPS for trading. When traveling from point A to B, you always have the option of simply jumping in a car and driving the route you assume would be best. But by using a GPS system, you can make a more informed decision based on speed, convenience, cost, or even a combination of all three.”

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ITG expects to make a $10 million loss in the second quarter of 2015 due to a fine from US regulators.

Last week, the agency broker said it was close to reaching a settlement over a fine for dark pool rule violations by a subsidiary and has today published further details ahead of an earnings call due to take place later.

The scandal has already claimed the company’s CEO, Bob Gasser, who was abruptly replaced yesterday.

The fine relates to a proprietary trading pilot operating by ITG’s AlterNet Securities subsidiary during 2010-2011. A Securities and Exchange Commission (SEC) investigation is focusing on customer disclosures, Form ATS filings and customer information control relating to the pilot.

Violations include crossing against sell-side clients in POSIT and violations of ITG policy by a former employee, primarily information breaches.

ITG has negotiated a settlement with the SEC that is expected to see ITG pay an aggregate amount of $20.3 million of which $18 million is a civil penalty with a disgorgement of $2.1 million in trading revenues and interest of $250,000. The firm also incurred £2.3 million in legal and other costs.

As a result, the firm expects to announce a GAAP net loss of $10.2 million for Q2, including a reserve for the settlement.

ITG said until the issue is resolved it expects to incur further costs which could be significant.

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Fixed income trading specialist Algomi has now signed up 100 buy-side firms to its Honeycomb network as competition among bond platforms heats up.

Algomi’s Honeycomb network provides information-matching to optimise fixed income liquidity and enable investors and dealers to find each other.

It has managed to double the number of buy-side firms signed up in just two months. It launched for the sell-side in spring 2014 and began being rolled out to the buy-side at the end of the year.

Gathering a critical mass of buy-side participation is seen as being crucial for many of the new bond trading platforms that have sprung over the past year. Earlier this month, reports began circulating that Bondcube, an all-to-all fixed income trading network, had gone into liquidation after failing to attract sufficient trading activity.

While several dozen platforms are currently vying for buy-side members, market commentators expect that only a handful will be viable in the long run.

Commenting on Algomi’s milestone, Stu Taylor, co-founder and CEO, said: “The rapid uptake of the buy-side to the Honeycomb network demonstrates that there is an increasing need for more efficiency in voice corporate bond trading.”

“Doubling the number of firms on the Honeycomb network in such a short period of time is indicative of the liquidity problems that global credit markets face, and is testament to our robust sales process and technology teams that are onboarding the firms, enabling the buy-side to access the information that helps make illiquid trades happen.”

Honeycomb enables institutional investors to see which dealer is best placed to facilitate a trade in an illiquid corporate bond while minimizing market impact. Algomi currently has 11 major banks signed up and is continuing to add a variety of buy-siders to the network, including asset managers, pension funds and hedge funds.

The post Algomi hits buy-side milestone for fixed income platform appeared first on The TRADE.

Liquidnet is demoing its fixed income dark pool to European clients as it prepares for a post-summer launch of the platform.

The trading venue operator, which has made its name by offering block trading in equities, has sought to give the new platform similar functionality to its existing equities pool, while tailoring it to the specifics of the fixed income market.

The bond trading service’s interface works in a similar manner to its equities pool, sweeping blotters for fixed income orders and notifying traders of potential matches.

However, once a match is identified the pool can then apply two additional levels of matching to any negotiation process in order to minimise information leakage, based on price tolerance and size.

If any party to a negotiation does not meet the other’s price tolerance then the negotiation process is automatically brought to a close, and a similar mechanic is in place if minimum order size requirements are not met.

Additionally, once a trade is executed, neither side will have any knowledge of how much of the order remains outstanding. Liquidnet said these various levels of protection for order information will minimise market impact and prevent potential gaming of the pool.

It will also apply many of its rules and anti-gaming measures that are already seen in its equities dark pool, after client feedback suggested adopting a similar ruleset would be beneficial. Clients that perform activities that appear to be aimed purely at gaining information on other users’ orders will be banned from trading in particular bonds for repeat offences.

Pricing information is also available, drawn from IDC and Markit’s indicative fixed income market data to aid traders in determining and appropriate price. This data also feeds a TCA system that is included, which records all negotiation information performed by a trader to be used by compliance.

So far, Liquidnet said it has demoed the platform to over 40 buy-side clients and added that many of its biggest equity clients are also among the largest institutional bond traders in Europe.

It also revealed it eventually wants the platform to become a fully all-to-all service, which would include the sell-side. This would differ from its equity dark pool, which is aimed at institutional investors, however it will apply different rules for sell-side participants.

The platform intends to launch later this year, with larger buy-side clients expected to test and onboard first.

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BATS Chi-X Europe has pulled out of industry-developed dark pool project Plato Partnership to pursue its internal initiatives.

Plato evolved from collaboration among a number of asset managers and sell-side firms and intends to launch a dark pool, with profits funneled back into research to improve market structure.

Hannah Randall, head of communications at BATS Chi-X Europe, said: “After careful consideration and extended discussions, we have taken the decision to withdraw from the Plato selection process. We fully intend to facilitate large-in-scale trading and we will be unveiling highly competitive initiatives in the coming months.

“These new facilities will be wholly consistent with our strategy of improving the European market for all investors and traders.”

Plato has asked market participants to vote on which firm should provide the technology platform for its dark pool. The initial pool of seven firms included Aquis, Turquoise and Nasdaq, as well as BATS Chi-X Europe.

A statement issued by Plato Partnership said: “Plato Partnership is in the process of selecting a partner who we can work with to develop Plato’s trading utility. While we are making good progress narrowing the field, the process is still ongoing and we will update the market when we have reached a decision.”

A number of market operators have been developing their block trading credentials ahead of the implementation of MiFID II. It is thought caps on dark pool trading will require more trades to qualify for the large-in-scale waiver, as those larger trades are exempt from the proposed caps.

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Last month, the institutional block trading specialist announced it will soon launch a fixed income dark pool, after aquiring fixed income firm Vega-Chi in 2014.

Dennis was formerly director of investment grade and high-yield credit trading at BlackRock. He also spent stints at Lehman Brothers, First Boston and Credit Suisse.

He will be based in New York and report directly to Constantinos Antoniades, head of fixed income.

Dennis said he will draw on his buy-side experience for the role, adding: ““I understand firsthand the challenges that bond traders face and the need for technology to make the process more efficient. Liquidnet has a history of driving innovation to solve industry challenges and they will continue to do that with the launch of the first dark pool for corporate bonds.

“I am fortunate to have the opportunity to further build out our community of market participants who will benefit from this solution. The platform is incredibly simple to use and, for the first time, will bring all the liquidity together in one place.”

The post Liquidnet poaches BlackRock director to head US bond sales appeared first on The TRADE.

With trading caps threatening to limit activity in dark trading venues from 2017, Joe McGrath asks what are the implications for market participants?

The clock is ticking. Under the Markets In Financial Instruments Directive II (MIFID II), trading caps will take effect in 18 months’ time, limiting trading in dark pools. The process of data collection to monitor the activity will commence at the start of 2016. 

At the time of writing, the rules stated that there will be a limit of 4% in the trading of any individual stock in any single pool and a limit of 8% in any stock across all dark pools, although these caps will not apply to large-in-scale trades.

Industry experts are predicting this could have a significant impact on the liquidity of certain stocks as the limits are reached in individual or multiple venues.

For the buy-side, this may end up influencing the timing of portfolio adjustments or even stock selection. Technology will also have to adapt.

Smart Order Routers will no longer be able to rely on historical data as they once did and the patterns of venue use will undoubtedly change.

With this mind, some have raised concerns that we may yet see fragmentation increase still further as more initiatives divide trades even further. So how significant are the new block trading solutions, which have so far been put forward to market and should buy-siders be using them?

Adam Toms, chief executive officer of Instinet Europe, is among those key industry figures who are warning traders to make better use of the tools already at their disposal before embracing other new market entrants.

He explains: “There have been lots of initiatives through history. But ultimately, are we doing enough with what is already available? Is there a more of a behavioural element that we need to change? We need to ask is this a product design problem or a behaviour usage problem?”

Changing behaviours

Toms suggests that, to break the cycle of fragmentation, that market participants should spend more time looking at the behavioural aspects of traders.

He says: “We have been doing some work here to understand how our orders get fragmented. What portion is the client responsible for?  What portion is Instinet responsible for?  What portion is the marketplace and market structure accountable for?”

Instinet is planning to share these findings with the market in the coming weeks and its clients have already benefitted from seeing the findings in a pre-released report.

Toms says: “One of the most basic things it demonstrated was that if people want to trade in larger blocks – there is a simple solution for that – minimum order sizes. How many clients use min order sizes? Well, it was quite small.

“Then we said for the people that do utilise minimum order sizes, what minimum order size did they use? Most were really small.  It seemed to be that [the minimum order size] is being used as a protection mechanism for the cost of booking a trade.”

Toms admits that he cannot change behaviour alone.  He is hopeful that new initiatives such as the Plato initiative will build on Instinet’s work in this area with its promised academic research activity.

Many delegates at the recent TradeTech Conference in Paris were keen to back Turquoise Block Discovery, but the newly emerging market solutions also have their champions.

Then there are the enhanced services from traditional players like Societe Generale and Bank of America Merrill Lynch show how the new battleground for block trades is taking shape.

Ian Martin of Societe Generale Prime Services’ Electronic Sales Trading team, says SocGen has prepared for the anticipated increase in activity in this marketplace ahead of the MIFID II deadline.

He said: “A recent entry and one which appears to have gained a good degree of traction from a buy-side perspective is from Turquoise, in the form of their Block Discovery Service (BDS).

“Clients who access the venue through Societe Generale [say] they feel comfortable using this type of exchange-driven initiative. The service has already adopted a Large In Scale (LIS) criteria, which negates the proposed dark volume caps and provides the opportunity for traders to potentially execute larger, block size liquidity.”

But for all of the enhancements being made to venues as a result of the regulatory changes and the new initiatives coming onto the market, concerns around fragmentation persist.

Michael Richter, director of transaction cost analysis at Markit, says the latest block trading “solutions” which have been put to the market are ‘not hugely significant’ and he is waiting to see evidence of something new.

He explains: “Buy-side crossing networks have been tried a number of times over the past 15 years since markets started fragmenting.

“The point about the equity markets is that they include many different investors with different time horizons and investment goals, who disagree on the valuation of the asset (demand and supply).

“That is what makes a ‘trade’ and generates liquidity. That is why HFT firms are providing liquidity and liquidity comes at a price.”

High frequency aiding

This year’s TradeTech conference also provided the industry with an opportunity to reflect on how the market perception of high frequency traders has shifted, a year after the furore from Michael Lewis’s Flash Boys.

In the aftermath of the publication, numerous buy-siders were quoted in the national media as having ‘concerns’ about the effect HFT could be having on their clients.

However, since then the mood has calmed, with industry figureheads becoming increasingly vocal about the role high frequency trading plays in providing liquidity to market.

Markit’s Richter, says those portfolio managers who were quoted saying they can no longer trade large blocks on exchanges without getting ‘picked off’ by high frequency trading firms are “focusing on the trees and not the forests”.

He explains: “It may be true, but portfolio managers would be better served focusing on the 80% of their costs that result from investment timing rather than getting apoplectic over one or two bps.

“I think a trading desk can certainly add value by having a good understanding of liquidity and where to find it, knowing when to trade a block and not trade a block, being in control of the venues they are executed on and mitigating some of this predatory activity that HFTs use.”

SocGen’s Martin acknowledges that there has been a shift in behaviour, but he says that the search for the ideal venue is still very much on.

He says: “There is no question, traders have had to change their approach, in order to adapt to certain types of HFT participants. This has led to liquidity moving away from lit exchanges, with the intention of finding dark, or block liquidity on alternative venues.

“The challenge has been to determine which venues to use, depending on the individual order and level of urgency.”  

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