The T Word

It was interesting to watch Andrew Bowley’s video interview on Finextra regarding the launch of Nomura’s dark pool - NX. It helped crystallise the love/hate relationship between dark pools and the T word - Transparency.

Andrew Bowley made a good point about how the pursuit of MTF status for NX had been going on for a long time and wasn’t just a knee jerk reaction to the increasing regulatory pressure on the dark pool phenomenon. He also talked about how greater transparency was a good form of advertising for his brand and would help attract customers. This would seem to be the case, too, for Instinet’s dark pool - BlockMatch - which went down a similar MTF route. Other dark pool operators don’t quite share Andrew’s view on transparency although this is a function of their diversity rather than any attempt to be necessarily opaque. On both sides of the Atlantic there is a wide array of activities being labelled dark pools, all of them offering different services aimed at different market sectors. In the US, for example, dark pools operated by GETCO and Knight are market maker dark pools where the pool operator is always taking the other side of the trade. Others, like Liquidnet, are buy-side only crossing networks. In yet another category are the venue operated pools such as Chi-Vision or the LSE’s Turquoise (nee Baikal) that offer aggregation services by providing dark SOR connectivity to other dark pools. And, finally, there are the broker-owned dark pools such as SigmaX (Goldman Sachs) and Crossfinder (Credit Suisse). This is what is causing the regulators such a headache as it’s impossible to regulate effectively in such a diverse environment.

This is all part of a wider transparency issue in Europe that revolves around the lack of agreed standards for pre- and post-trade market data. I have commented a few times that an industry derived solution would be better than anything imposed from above. This, however, requires that industry players adopt a grown-up approach and collaborate when perhaps their instinct is to try and compete. With this in mind, it was interesting to read the European Data Consolidation paper sent to me by Andrew Allwright at Thomson Reuters. While it naturally has a Reuters sales bias it does succinctly highlight the issues and make a number of sensible recommendations that could form the basis of a long term solution. I’m not sure that all the proposals outlined will work in practice but this is a community problem and I believe we should be working together to resolve it. Naturally it will require some discussions about the detail.

It would be interesting to know what people think about the best way to resolve this current lack of transparency in pre- and post-trade data. Market collaboration by industry participants? Further regulatory intervention?