Nyfix has amended the matching algorithm on its Euro Millennium dark pool to limit crossing at the mid-point of the reference market price in an effort to comply with a new interpretation of the MiFID rulebook by the UK's Financial Services Authority.
The mid-point only matching switch was implemented Monday as an interim measure, with further 'matching reference points' to be introduced in the coming months, says Nyfix International CEO Chris Smith.
The FSA has called for modifications to Euro Millennium as part of a market-wide probe into the activities of dark pools in an effort to meet demands by the Committee of European Securities Regulators for more transparency in pre-trade pricing over the platforms.
In particular, the regulators are concerned that market participants are using certain dark pools to game price improvements by making orders in the middle of the spread, rather than at the mid-point. In this way, the dark pools may be a vehicle for price discovery - which the watchdog says should be available to all participants through the 'lit' order book.
The move to restrict such manoeuvring may reduce the attraction of the dark pool to sell-side institutions.
Nyfix's Smith says that the change to mid-point matching is only temporary and that other matching reference points will be added over time, including at the bid and offer price and at close of play. Another option may see the introduction of a matching period occurring after the reference market closing auction.
He adds that the company will soon extend the universe of stocks currently offered for matching on Euro Millennium to include Italian, Swedish, Danish and Finnish listed securities.
Says Smith: "Nyfix continues to believe that dark pools such as Euro Millennium offer market participants an important and valuable ability to find liquidity, particularly for orders larger than those normally available on the primary market."