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Barclays Capital Took Colocation Step to Grow Liquidity of LX Dark Pool

Seeking to grow volume of LX dark pool, Barclays positions matching engine in colo facility to access liquidity of hedge funds, exchanges and broker dealers.

Barclays Capital moved its dark liquidity pool LX to the Savvis NJ2 data center last month as part of a broader strategy to grow its electronic trading business and take market share.

With an aggressive plan to build out its electronic trading businesses, in late June Barclay’s Capital announced that LX is being hosted in Savvis’ newly launched NJ2 premier data center complex in Weehawken, N.J.

“You want to put your matching engine in a place that is as close to as many liquidity sources and putting it (LX) in Savvis, we get access to a lot of additional liquidity,” said Bill Libby, VP of electronic trading services at Barclays Capital in an interview with Advanced Trading.

“There’s a lot of firms connected there…a lot of hedge funds, exchanges and broker dealers, so there’s a pretty solid ecosystem there,” continued Libby.

Previously, Barclays’ LX was housed in the bank’s private data center, but now it wants to position itself to be in the crossfire of other liquidity sources. “If you’re in private data center, the purpose of that is Barclays’ itself. You’re not going to host other clients,” explained Libby. “And if we put it in Savvis, we’ll be as close as possible to the largest sources of liquidity,” said Libby.

According to Libby, the decision to colocate LX, Barclays’ dark liquidity crossing network in a centralized liquidity center like Savvis NJ2 is the first step in a larger collocation strategy.

Savvis hosts two of the top four displayed and five of the top 10 non-displayed markets in the U.S. in the NJ2 data center. BATS and NYSE Arca run both their equities and options exchanges there, according to Varghese Thomas, VP and general manager of financial markets for Savvis. In terms of dark pools, NJ2 hosts Credit Suisse CrossFinder, Barclays LX and UBS PIN ATS. “Our focus is on our trading ecosystem,” said Thomas in an interview at the SIFMA show.

By locating the matching engine in a liquidity center with other liquidity sources, Barclays expects to access a lot of additional liquidity, while at the same time, giving clients lower latency for executing strategies they might not have turned on before.

“If you’re another broker dealer or market maker or retail firm and it takes you 10-plus milliseconds to cancel and send an order, you have to make sure how much liquidity you expose because there’s a greater chance of being over filled,” cautions Libby. “If you knew you could react to the market in a sub-millisecond fashion, you’re much more comfortable using that venue for a wider variety of models,” he said.

Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio

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