As the industry grapples with finding liquidity in as many as 40 dark pools, NYFIX Millennium (booth #3117) introduced a new order type at the SIFMA show called Millennium PLUS as a way to aggregate nondisplayed liquidity sources in its alternative trading system (ATS). "Millennium PLUS is our new offering and venture into aggregation of nondisplayed liquidity," says NYFIX Millennium CEO Brian Carr.
Currently, buy- and sell-side firms send pass-through orders to Millennium to find matches on their way to a public market center as well as resting orders that reside in Millennium. When a client order is sent via Millennium PLUS, however, it will automatically generate a liquidity alert to several passive liquidity responders (PLRs), explains Carr. The responders could be dark pools, brokers' internalized matching engines or other passive traders — including institutional index funds and hedge funds — that otherwise do not make their liquidity publicly available, he says. "That's one of the key differentiating factors — it's not just aggregating other dark pools," Carr relates.
"The alert goes out indicating the cumulative liquidity [in each stock symbol] available in Millennium, and these responders get that message and respond with the liquidity they have," Carr says. To participate, PLRs must have standing liquidity, and they have to respond immediately with an order when a match occurs, relates Carr. "It's a passive reflex response."
But to qualify as a PLR, the response must come from an automated system. "No traders can see it — no systems can digest it and try to make a trading decision" off the signal, the CEO stresses. "They have to systematically take in orders and respond with standing orders."
Carr explains that an order management system wouldn't work — "It has to be purely automated, passive, right into the trading systems of the LPR," he says.
By requiring automated passive liquidity response "it becomes more difficult to game," explains Larry Tabb, CEO of TABB Group, who notes that quant trading firms or index funds tend to be more automated than fundamental investment firms and tend to use advanced trading technology more aggressively. Tabb compares Millennium PLUS to ConvergEx: "It sounds something like what ConvergEx does, which is to ping someone to see if they're interested in the liquidity," he says.
However, "The technology required to hold the PLUS orders for milliseconds while an alert is generated and the opportunity for PLRs to respond is nontrivial and we believe unique amongst the pool operators," a Millennium spokesman contends. "Most are able to respond to things like quotes and IOIs [indications of interest] but do not generate any alerts themselves."
According to Carr, no distinction is made between buy-side and sell-side firms — as long as they can take in the alert and passively respond with any standing orders. Existing clients of Millennium can use the PLUS feature simply by opting in, he says, and MPLUS will release a liquidity alert seeking a response from the PLRs for an order before delivering it out to another market center. "The concept of drawing in that other nondisplayed liquidity is the real genesis to increase match rates," Carr says, contending that the first Millennium clients to use Millennium PLUS have seen their match rates double. "Obviously, the more responders we have in Millennium PLUS, the more we expect that to increase," he says.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