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NYSE Arca Routes to Dark Liquidity Pools
March 12, 2008
NYSE Euronext announced today that it will give NYSE Arca clients access to dark liquidity by routing orders to select broker-dealers and alternative trading systems, offering non-displayed quotes and aggregated liquidity.
NYSE says the service, which is rolling out with 29 destinations, will increase the potential for price improvement and give clients access to far more routing options than competitors’ offerings. The company declined to name the participating venues.
“Providing easy and efficient access to these diverse, non-displayed liquidity venues is an extension of our commitment to offer the greatest array of services to our clients,” Lawrence Leibowitz, group EVP and head of U.S. markets and global technology at NYSE Euronext, said in a statement. “By linking more market participants than any other exchange, we are reducing fragmentation and offering our clients greater speed, better prices and equality of access to liquidity.”
According to the exchange, customer demand was a factor in introducing the service. “Our intention is to advance our market model through client feedback,” said Christine Sandler, SVP of North American sales for NYSE Euronext. Clients “told us that the current fragmented market is not working for everyone.”
Sang Lee, co-founder and managing partner at Boston-based research firm Aite Group, called the move “an interesting play” that “somewhat mimics what others have been doing. In those cases, it has been more about dark pools routing to other dark pools.”
Lee likened the strategy to that of Archipelago--the electronic communications network (ECN) that, following its merger with the New York Stock Exchange, became the Arca electronic platform--“in which advance order-routing capability to other ECNs played a crucial role in increasing its overall internal matching rates.” The NYSE Arca service will play “gatekeeper to other liquidity pools and, if done correctly, should help Arca attract additional order flow,” he added.
The routing service is part of the newly formed NYSE Euronext Advanced Trading Solutions, a single umbrella for the exchange’s growing commercial technology business. Also included in the new unit are the TransactTools connectivity and messaging business acquired in December 2006, and the Secure Financial Transaction Infrastructure (SFTI) communications network, a subsidiary of the Securities Industry Automation Corp., according to an exchange spokesperson.
NYSE Euronext on March 7 added another business to the Advanced Trading Solutions division with the completion of its $200 million purchase of privately held Wombat Financial Software, a provider of data management technology. Announced in January, the deal is expected to be accretive in 2009 and will bridge the exchange’s “commercial technology and market data strategies, broadening our customer reach and enabling NYSE Euronext to deliver advanced technology solutions to our customers’ increasing data management challenges,” NYSE Euronext chief executive Duncan Niederauer said when the deal was announced.
“Wombat, together with TransactTools, positions NYSE Euronext as a global leader in providing integrated commercial technology solutions for financial services firms and other markets,” Niederauer said in a statement. “This is a rapidly growing sector of our business, and we look forward to providing our customer base with a comprehensive array of commercial technology solutions that include new connectivity tools, smart-order routing, data management and direct market access.”
New York-based Wombat, which has 140 employees and offices in Incline Village, Nev., Chicago, London, Belfast and Tokyo, touts 12 of the world’s largest financial firms as clients. It had $28 million in revenues last year, up 124 percent from 2006.
