Exclusive Online Only ContentBats Europe Enters Dark Pool Market
July 1, 2009
Bats Europe, the European arm of Bats Global Markets, said that it will enter the European dark pool market in August with an aggressively priced system that will reward participants that post sale or purchase orders while charging those who match orders. Testing will begin next month.
Participants will be able to send orders to the dark pool using existing FIX handlers. And orders will be hidden and executed at a midpoint reference price.
The launch of Bats’ dark pool will raise the number of off-exchange trading venues in Europe to 13, further squeezing margins for participants chasing scarce liquidity. “There are really two ways that any dark pool or multilateral trading facility can get ahead,” said Phillip Silitschanu, senior analyst with research firm Aite Group. “The first is on pricing and the second on latency.”
Some of the more successful multilateral trading facilities (MTFs) – namely Chi-X-- have been able to take a bite out of exchanges’ trading volume. The London Stock Exchange and Deutsche Borse are launching their own MTFs as a countermeasure. Aite’s Silitschanu predicts that MTFs will account for about 20 percent of the pan-European trading market by the end of this year.
Bats CEO Mark Hemsley, believes the company can make a mark by trading rebates for order volume. "We believe the costs for participants to send orders to other dark pools are unnecessarily high," he said in a statement issued by Bats. "We will reward participants that add liquidity to our dark pool via a rebate pricing structure since they create the opportunity for liquidity removers to benefit from price improvement."
Well-known for its efficient technology and price competitiveness, Bats’s 3-year-old U.S. platform has become the third largest U.S. equities trading system, In October 2008, Bats opened its European venue. So far, said Silitschanu, Bats Europe has nabbed more than 2 percent of the total European market share and is close to winning 5 percent of the market share in the largest European indexes.
Randy Williams, director of sales for Bats in the U.S, said that Bats Europe’s new dark pool is likely to garner interest from 35 firms currently using Bats Europe’s lit trading system. He declined to specify the size of the rebates to be offered but said the goal was to undercut the competition, citing Turquoise and Chi-X as examples.
“There is a segment of the trading arena that is rebate-driven and we expect they will be pretty pleased with our offering,” said Williams.
