Project SmartPool
http://online.wsj.com/article/SB118709597048897171.html?mod=hpp_us_whats_news
http://www.ft.com/cms/s/0
NYSE Euronext in ‘dark liquidity’ plan
By Paul J Davies
Published: October 24 2007 20:18 | Last updated: October 24 2007 20:18
NYSE Euronext has joined forces with BNP Paribas and HSBC to create a “dark liquidity” facility in Europe where banks can buy or sell large blocks of shares in a single company without the market knowing ahead of the trade.
The plan for the electronic trading platform, to be called Project SmartPool, is the first exchange-led effort in the field of off-exchange share trading, which has become a hot topic in the light of the new Markets in Financial Instruments Directive (Mifid) coming into force across the European Union on November 1.
SmartPool appears likely to be in direct competition with the efforts of a group of banks to set up a similar facility as part of the broader Project Turquoise, which is designed to compete with stock exchanges for all aspects of share trading.
Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, Merrill Lynch, Morgan Stanley and UBS are the driving forces behind Turquoise but BNP has also applied to become a member along with its French peer, Société Générale. BNP would not comment yesterday on its position in relation to Project Turquoise but one person familiar with the situation said Turquoise and SmartPool could be complementary and that the block trading aspect of Turquoise was only an early stage plan.
Lehman Brothers also has its own dark liquidity pool [Chi-X, below] project in Europe and is not a signatory to either of the other efforts.
The point of such dark liquidity pools is to keep block trades hidden from the market before they are executed. Demand for such services has grown along with the increasing sophistication of “trading cost analysis”.
Such analysis aims to capture the all-in cost of trading. Big orders to buy shares typically drive prices up while large sell orders have the reverse effect, raising the overall cost of trading.
SmartPool will be managed and run by NYSE Euronext, which will retain a majority share of the capital in the joint venture, the exchange said.
It is hoped the platform will be running by the middle of next year, though exact details on how it will operate are not yet fixed.
No other exchanges have yet launched similar efforts but one person at a rival exchange said that it made sense for exchanges to look at providing such services to banks.
NYSE Euronext said SmartPool would be open to all European banks and it would welcome any wanting to participate in the project.
Copyright The Financial Times Limited 2007
LiquidityHub launches swaps product - Oct-22
MTS goes for investor order driven trading - Oct-02
MTS plans to broaden trading beyond banks - Sep-27
Chi-X takes on the big exchanges - Sep-11
Chi-X platform captures share of trading - Sep-09
Lehman boosts access to ‘dark liquidity’ pool - Jul-25
http://www.msnbc.msn.com/id/21446432/
One banker said Cinnober had been the favoured choice of some of the consortium from the start. It built a clearing system for off-exchange traded derivatives for Euronext that has been well received.
http://business.timesonline.co.uk/tol/business/columnists/article2719213.ece?openComment=true
Time for red faces over at Turquoise
So it’s back to square one, or at least square three, for Turquoise, the consortium of seven investment banks trying to put together a rival market to the London Stock Exchange. Talks were called off late last week with Simon Brickles, the former LSE man who runs Plus Markets, after a row over technology.
The banks opted for a system called Cinnober, which Brickles didn’t like.
He would have become chief executive of the business, had the banks bought Plus, so the search is on again for one of the least desired posts in the City. Headhunters Armstrong International have been looking for much of this year, but with a marked lack of success. Given the scepticism, no one seems to want to risk “former chief executive of failed Turquoise” on their CV. I now hear there could be an internal appointment from one of the banks. And a new launch date of next summer, not far short of two years since the project was announced.
http://www.ft.com/cms/s/0
Turquoise appoints chief from Morgan Stanley
By Norma Cohen
Published: October 24 2007 22:18 | Last updated: October 24 2007 22:18
Project Turquoise, the ambitious investment bank-backed project to build a trading platform that competes with Europe’s stock exchanges, will on Thursday announce the appointment of both a chief executive and a technology provider, two key milestones in its development.
The new chief executive is Eli Lederman, a managing director at Morgan Stanley who has been responsible for overseeing electronic trading systems in New York and London.
The provider of the technology platform is to be Cinnober Financial Technology, the group that built BOAT, the trade reporting system backed by many of the same investment banks that are driving the Turquoise project.
The group aims to have a product capable of testing by the middle of 2008 and which is functional by autumn of that year.
The appointment of both a chief executive and a technology provider are key to Turquoise’s ability to convince the market that it is a credible competitor not only to existing exchanges but to other rival trading platforms seeking to take advantage of new European rules, known as MiFID, designed to promote competition in share trading.
Mr Lederman said the project was intended to make share trading in Europe as competitive as it is in the US. “It is possible that this becomes a tariff war and this is not entirely inconsistent with our objectives,” he said.
He said his first priority was to streamline the decision-making process within Turquoise, which has been hobbled by the loose structure of senior investment banking executives who have been running the project so far. “We have to be more entrepreneurial in this.”
He said he would be seeking quickly to appoint a chief technology officer and heads of compliance and risk. Second, he said he wanted to be much more transparent about the work undertaken and set out road maps to make clear where the project is going.
“Undeniably, this has not been as open as we would have liked,” he said, acknowledging that the lack of news flow had made it easy for established exchanges to dismiss the potential competitive threat.
Currently, Turquoise is looking at a tariff pricing model that has become the basis for the fiercely competitive US market, known as the “Taker-Maker” model.
Separately, BNP Paribas and Société Générale are to become 3 per cent shareholders in Turquoise.
Copyright The Financial Times Limited 2007
Chi-X takes on the big exchanges
By Norma Cohen
Published: September 11 2007 22:30 | Last updated: September 11 2007 22:30
Competition among Europe’s stock exchanges has been a long-sought, but never realised ambition.
A string of competitive failures characterises the European landscape back to the early 1990s, leading to widespread scepticism that challengers would emerge to take market share from the dominant players.
However, there are signs that conventional wisdom is being turned on its head.
Chi-X, a trading platform launched this year by Instinet Europe has succeeded recently in taking a significant minority of trading in the largest shares listed on the Dutch and German stock exchanges – two countries where domestic law does not require that all share trading be routed through the local exchange.
Indeed, on August 29, Chi-X took more than 44 per cent of trading in shares of Philips, nearly 30 per cent of those in ING Group, over 27 per cent of those in Royal Dutch Shell and nearly 11 per cent of those in Allianz, the German insurer.
For the most recent week for which Chi-X has data, it captured more than 5 per cent of turnover in Deutsche Telekom and more than 6 per cent of that in Bayer as well.
For its part, Chi-X’s operator said that its early success – it began offering trading in those securities only in April – shows that competition is possible.
Competition is the goal of new European legislation which takes effect on November 1 and allows trading platforms such as Chi-X to offer exchange-like services. Chi-X has chosen to launch before then because some markets do not require all share trading to be routed through domestic exchanges.
Chi-X is not even considered the most important potential competitor. That title goes to Project Turquoise, the trading platform proposed by seven of Europe’s largest investment banks which will also incorporate a “dark liquidity” facility for very large blocks of shares. It has vowed to be at least 50 per cent cheaper than its competitors.
Tony Mackay, chief executive of Institnet Europe said that costs are roughly 0.9 basis points less than the average cost of trading on the Dutch, German and London exchanges and that spreads are on average 1.5 basis points tighter.
Mr Mackay said that the cost savings offered by Chi-X, if spread across the entire European market, would lead to aggregate cost savings for investors of €2.5bn ($3.5bn), or 1 per cent of total annual turnover.
Moreover, with a round-trip time of 2 milliseconds, Chi-X is quicker than any other European exchange.
It was this lower cost and speed, Mr Mackay said, which was responsible for its market share.
Credit Suisse, the only investment bank so far to have hooked up to Chi-X, agrees. Richard Balarkas, head of automated execution services at Credit Suisse, said: “We are seeing increasing opportunities for us to find liquidity on Chi-X at prices which are better than the main national exchanges”.
Indeed, on the day Chi-X garnered nearly half the trading in shares of Philips, it was offering a better bid 36.5 per cent of the time and a better offered price 45.3 per cent of the time, Mr Balarkas said. Average improvement, ask to ask, was 3.03 basis points.
However, NYSE Euronext, owner of the Dutch stock exchange, does not intend to allow Chi-X to erode its dominance. Roland Bellgarde, head of European cash equities at NYSE Euronext, said the only reason Chi-X could quote finer prices is that its system allowed price quotes to three decimal places while Euronext Amsterdam currently allowed only two. “In January, following completion of a consultation exercise, we will move to four decimal places, not just three,” he said.
“So we are going to adapt,” he said, adding that there were no plans to reduce tariffs to match those of Chi-X.
Ironically, the emerging competition softens the alarm bells rung by Clara Furse, chief executive of the London Stock Exchange, who warned that Mifid and the competition it produces would lead to serious fragmentation and wider bid/ask spreads that would harm investors.
With NYSE Euronext threatening to respond to Chi-X with even tighter spreads, that threat appears to diminish.
Indeed, Mr Balarkas notes that fiercely competitive US markets have already produced tighter spreads for investors. “There is not a shred of academic evidence that competition in the US market is leading to wider spreads,” he said.
Copyright The Financial Times Limited 2007
Lehman boosts access to ‘dark liquidity’ pool
By Norma Cohen
Published: July 25 2007 22:44 | Last updated: July 25 2007 22:44
Lehman Brothers has boosted access to its own “dark liquidity” pool – offers to buy and sell shares that are hidden from the market – by installing an electronic access connection that is capable of linking with most order execution management systems.
Known as Liquidity Cross (LX), it is one of a growing number of such facilities offered by the largest investment banks seeking to capture the growing demand from investors to buy and sell large blocks of shares without causing prices to jump or fall in response.
Lehman said that while its competitors were offering similar dark liquidity pools, it believes it is the only one allowing large institutional fund managers and hedge funds to access the pool directly without manually directing that order through a trader.
It has signed up more than 120 large institutions as customers of its new system, launched this year.
Dark liquidity pools have grown in demand along with the increasing sophistication of “trding cost analysis”.
These systems, typically used by large investors such as mutual funds, aim to capture the all-in cost of trading. Big orders to buy shares typically drive prices up while large sell orders have the reverse effect, raising the overall cost of trading.
The desire to minimise trading cost is prompting brokers to slice customer orders into smaller parcels, sending them to exchanges in batches and is one reason for the growing volume of on-exchange trades. Large orders are difficult to execute on exchange, forcing brokers to seek alternatives.
Project Turquoise, the trading system bankrolled by a group of Europe’s largest banks and which aims to compete on price with the region’s stock exchanges, will also offer its own dark liquidity pool that combines the “hidden” orders of all its participants. Lehman Brothers is not an investor in Project Turquoise.
Copyright The Financial Times Limited 2007