Ivy Schmerken, Advanced Trading
Crossing networks are staking out their turf in trading Pan European equities as a prelude to competing with traditional exchanges under the Markets In Financial Instruments Directive or MiFID.
This week, Investment Technology Group (ITG) said it plans to launch POSIT Now, a continuous intraday crossing system for equities - into Europe. POSIT was the first regulated ATS in Europe but as of November, it will become a multilateral trading facility or MTF under MiFID.ITG introduced crossing into Europe in 1998, with POSIT Match currently running eight matches a day at specific times covering 9,000 stocks in 15 countries. Three years ago, it acquired eCrossnet, a product only open to the buy-side. But on Feb. 14, it will turn POSIT Match into POSIT Now, a continuous, anonymous matching system.
This means ITG was essentially the first company to bring dark liquidity pools - not displayed on order books - into Europe, says Belinda Keheyan, head of international marketing for ITG in an interview with Advanced Trading.
"The two benefits are midpoint pricing and no market impact because our system is anonymous so it's confidential which means you don't know who is in the market. You don't even know they're in the market," says Keheyan.
Though the market for crossing stocks "was seen as an alien U.S. thing that wouldn't work," ITG grew the market step-by-step to the point that now there is a huge demand for continuous crossing, says Keheyan. With the rise of algorithms, traders want speed-to-market and are less likely to wait for a specific time to cross stocks, she notes.
ITG is betting that alternative trading systems will benefit under MiFID because fund managers and their brokers have a 'best execution' obligation for people too look at all forms of liquidity, she says, adding that POSIT is the biggest source of non-exchange liquidity in the European markets.
Seeing MiFID as a huge opportunity that will give crossing networks an extra boost, other major U.S. operators of alternative trading systems (ATSs) are expanding into European equities. In January, Instinet launched Chi-X as an alternative trading system for trading 7,500 Pan European equities but indicated it will also morph into an MTF when MiFID takes affect in November of 2007.
Meanwhile, Liquidnet, one of ITG's main competitors in the U.S., is also expanding in Europe. "We're trading in 20 countries now and we're starting to trade in an additional 15 markets over the next six months," said CEO Seth Merrin in an interview with Wall Street & Technology, noting plans to expand into Asia and Eastern European markets.
Since Liquidnet is acquiring algorithmic trading provider Miletus Trading, it will look to pair those quantitative strategies with international stocks. "One of the other real multiplying effects of this acquisition is the ability to offer this next generation trading model globally," said Merrin in an interview.
Even exchanges are looking for ways to cash in on the MiFID momentum. Last week, The Nasdaq Stock Market indicated it was in talks with Project Turquoise - a consortium of investment banks that are supposedly forming an electronic trading platform to go up against the London Stock Exchange. According to published reports, Nasdaq has offered to license its INET technology to Turqoise even though it continues to hold 29 percent stake in the LSE.
While there is so much talk of dark liquidity pools, some of the efforts are nothing more than vaporware or a PowerPoint presentation, says ITG's Keheyan. While Keheyan contends ITG is offering "the only proper pool of dark liquidity that is open to all institutional investors," no doubt others are going to jump in. 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