Robert Barnes, chief executive of Turquoise, said the multilateral trading facility already has two years of empirical data showing it can deliver best execution as required under the new MiFID II regulations, especially for large trades.
Trading in large size will become more difficult under MiFID II, covering financial markets in the European Union from 2018, as it introduces double volume caps on volumes of dark pool trading. In addition, brokers will not be able to cross internal flows under MiFID II, without registering as a systematic internalizer. However Large In Scale (LIS) trades, above a certain size specified by the European Securities and Markets Authority, are exempt from the dark pool volume caps.
Barnes told Markets Media that Turquoise, the European MTF majority-owned by London Stock Exchange Group, is very well positioned for MiFID II.
“We have a working Large in Scale mechanism for electronic block trading and more than two years of empirical data from independent firms such as Liquidmetrix showing that Turquoise Plato Uncross provides quality execution that can deliver the best results on a continuous basis - the very definition of MiFID best execution,” he added.
Barnes continued that for the smallest stocks with an Esma large in scale threshold limit of €50,000, the average trade above the LIS threshold is nearly three times LIS. For the most liquid blue-chips with an LIS threshold of €0.5m, average trade size above LIS is above €1m.
“Turquoise Plato Block Discovery trades for Esma Band 5 blue chips above LIS are more than €1m and this is more than 100 times larger than the €10k average trade sizes arising from the same names in continuous midpoint activity,” he said.
Last September Turquoise agreed a cooperation agreement with Plato Partnership, the non-profit group which aims to improve equity market structure.
“Plato selected Turquoise as a partner following a comprehensive tender process involving some 20 firms,” added Barnes. “Senior management from across LSEG have been very supportive of this initiative from the start.”
Turquoise rebranded its dark services as Turquoise Plato Block Discovery and Turquoise Plato Uncross. Uncross features random intra-day auctions which happen more frequently in more liquid stocks, making it harder for the auction to be targeted by aggressive trading strategies. Block Discovery facilitates trading in larger block orders by electronically matching block indications. On identifying potential matches, the service requires participants to send firm qualifying block orders to Uncross and their behaviour is monitored.
“If members come back in time with smaller size then their reputation score goes down,” said Barnes. “If they come back in full size but after the required time (450ms), then their score for that trade is zero.”
Barnes added that since launching in 2014, more than 90% of Turquoise’s orders have firmed up in full size and within the time required (450ms).
This month Xavier Rolet, chief executive of the London Stock Exchange Group, said on a results call that Turquoise Plato Block Discovery had brought together the buyside, sellside and a trading venue for the first time. Rolet said: “Turquoise Plato had a record growth in volumes and has perfect positioning for MiFID II.”
Founding members of Plato Partnership include BlackRock, Norges Bank Investment Management, Barclays, Bank of America Merrill Lynch and UBS. This month another 15 partners were announced including Instinet Europe, Jefferies, Legal & General Investment Management, Standard Life Investments and T. Rowe Price.
Mike Bellaro, Plato co-chair and global head of equity trading at Deutsche Asset Management, said in a statement: “We now have the representation and the financial resources to fund significant initiatives that will have a tangible impact on the marketplace. One initiative being considered currently is indications of interest, an increasingly important issue for market participants, and we expect to provide insight and output on this in the coming months.”
The LSE reported that Turquoise’s share of European trading grew to 11.7% last year from 8.3% in 2015. The value of trading on Turquoise’s lit book was €1.2 trillion last year, up 26% year-on-year, while the value traded on the dark book was €159bn, an increase of a third from 2015.
In addition, the average trade size on Turquoise Plato Block Discovery is 30 times industry dark pool average according to the LSE. The group said Turquoise Plato Block Discovery has matched €13.2bn from launch in 2014 to the end of last month, of which 69% has traded since last September.
Barnes said: “Turquoise had been growing volumes prior to the UK referendum but the result led to a massive spike in trading activity on the platform which, uniquely among European orderbooks has continued in the following months. Volumes on Turquoise Plato Block Discovery are still significantly above that extraordinary June.”
He continued that in the last 90 days the average size of the top 10 trades via Turquoise Plato Block Discovery has been more than €7m.
“When Italgas listed on Borsa Italiana we did a single ticket trade of €9.6m just a few days later,” said Barnes. “We also recently had one trade of €13.1m in Eni, the global energy company also listed on Borsa Italiana.”
Turquoise Plato volumes have also been boosted by increasing the number of stocks that can be traded on the venue. In 2013 Turquoise traded 1,600 different stocks but that has grown to 2,600 across Europe. “This matters in a European landscape where approximately 80% of daily orderbook activity is in the top 300 names,” Barnes added.
The stock universe has been widened to include economies such as the Czech Republic, Hungary and Poland with QuantHouse which provides systematic trading infrastructure solutions including ultra-low latency market data, algo trading development frameworks, proximity hosting and order routing.
This month Turquoise extended the QuantHouse real-time primary market data feeds from emerging markets to its Turquoise Plato midpoint matching services, including Block Discovery.
Barnes said: “We have partnered with QuantHouse, which provides us the best bid-offer price from primary markets which Turquoise references within its Turquoise Plato order book innovations such as Turquoise Plato Block Discovery, Turquoise Plato Uncross and Turquoise Plato Dark Lit Sweep.”
QuantHouse was acquired by S&P over four years ago and acquired back by the QuantHouse founders in January this year.
Stephane Leroy, business co-founder and chief revenue officer, QuantHouse, told Markets Media: “In the 1960s car factories were full of workers and now robots assemble 99% of cars. Capital markets are still in the early stage of this process of robotisation and QuantHouse helps to build this new industry by providing the tools needed by quant traders to build algo-trading strategies.”