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Dark-Pool Liquidity Manager OnePipe Goes Live
February 25, 2008
Amid a highly volatile market and increased activity on alternative trading systems, OnePipe, a dark-pool liquidity management system, launched today, said agency brokerage Weeden & Co. and its technology partner, Pragma Financial Systems.
OnePipe, which touts connections to 25 dark pools, advanced logic capabilities and high matching rates, was developed by quantitative and technology experts at New York-based Pragma, whose relationship with Weeden has also produced algorithmic applications, among others. Nearly 100 clients have signed up for the service.
“Clients are looking to access dark-pool liquidity and are doing so in more places than ever, but what traders need is a single platform where they can access all this liquidity efficiently and in an intelligent manner,” said Doug Rivelli, managing director of Greenwich, Conn.-based Weeden. “That is what OnePipe provides.”
According to Tabb Group, between 10 percent and 15 percent of U.S. equities executions are on undisplayed venues. Bids Trading, Credit Suisse, Pipeline Trading Systems and Liquidnet have all reported record-breaking activity on their dark pools and crossing networks this month.
Rivelli pointed out that many OnePipe customers--the product has been in beta-testing since November--are seeing matching rates over 40 percent. “That is multiples of crossing rates that we see in most of our competitors,” he claimed. As more destinations launch, Rivelli said that OnePipe will add connectivity to them.
Faced with numerous dark venues, traders are asking, “‘Do I throw my trade into one or allocate among several, and what’s the optimal manner?’--we have developed a way to provide the best answer to that question,” said Lee Maclin, director of research at Pragma and a professor at New York University’s Courant Institute of Mathematical Sciences. He likens OnePipe to an air traffic controller for dark-pool access.
OnePipe divides orders between venues based on both historical and trade-date liquidity and without regard to execution fees. While traders often simultaneously access the four or five dark pools with the highest individual crossing rates, OnePipe is designed to also watch for opportunities in the less active pools.
“The incremental liquidity in those 20 remaining pools is extraordinarily valuable to the overall crossing rate,” said Pragma president David Mechner, adding that whether or not a trade is made, the information is useful for allocation strategies. “By only connecting to a very limited number of pools, traders are doing themselves a disservice by leaving a significant amount of passive liquidity untapped,” he said.
OnePipe manages the various liquidity sources’ rules, including those related to minimum share size, resting orders and crossing times. The platform also features anti-gaming logic and monitors all liquidity venues for execution quality on an ongoing basis.
The service’s “clients get a very high level of anonymity because we are accessing all these venues for them as Weeden,” Rivelli said. “The various dark pools we access do not know who the ultimate client is,” which provides protection against information leakage and reduces market impact.
Having a single connection to multiple pools reduces trading and maintenance fees, but “the biggest cost-saving to our clients comes with our higher crossing rate,” said Maclin.
Laurie Berke, senior consultant at New York-based Tabb Group, described OnePipe as “a reflection of the next generation of dark-pool solutions,” providing traders with an informed way of tapping the right dark pool at the right time. Berke cited OnePipe’s state-of-the-art capabilities but noted that there are competing products from firms such as Credit Suisse, Knight Capital Group and Investment Technology Group.
