LSE and Lehman to launch European dark pool

LSE and Lehman to launch European dark pool

In a move that pitches it directly against rivals intent on stealing its market share, London Stock Exchange (LSE) is partnering Lehman Brothers to launch an off-bourse, pan-European equities trading facility that combines a dark liquidity pool with algorithmic trading functionality.

The multilateral trading facility (MTF) - called Baikal - is slated for launch in the first quarter of 2009, subject to regulatory approval.

Baikal - which has been named after the deepest lake in the world - will offer access to securities across 14 European countries, with smart order routing to liquidity in at least 22 trading venues. The MTF will be "the first to combine an innovative dark liquidity pool with sophisticated algorithmic trading functionality", says LSE.

The platform will offer liquidity seeking algorithmic trading strategies, anti-gaming controls and market surveillance tools and a pan-European clearing and settlement system with aggregated trade booking.

The joint venture will be chaired by LSE chief executive Clara Furse but will operate as an independent, standalone business and other companies can buy into the venture.

"Baikal provides an exciting opportunity for the market to transact certain types of business in European equities with the confidence of total pre-trade anonymity, alongside the efficient price formation of the electronic order books of exchanges, where the majority of equities across Europe are traded," says Furse. "In addition, we actively welcome the participation of other members of the sell-side as well as buy-side community in making Baikal a success in bringing down the cost of investment in European equities."

The joint venture pitches the LSE directly against the unprecedented number of rivals launching in its core markets following the introduction of the European Union's Markets in Financial Instruments Directive (MiFID) last year.

Shares in LSE have fallen over 50% this year on concerns that it will lose an increasingly large part of its market share to platforms that offer faster execution times, such as Chi-X which already claims it trades over 10% of LSE market share following its launch last year. A raft of new platforms is set to enter the European markets this year, including systems from Nasdaq OMX and Bats Trading and the bank-backed Turquoise facility.

The markets were unimpressed by the LSE's latest initiative, marking the stock down 71 pence to 865.5 in early monring trading.

Lehman Brothers is one of the few major investment banks that is not backing the Turquoise platform - which plans to offer both a transparent order book and anonymous block trading when it launches in September.

Like the LSE, other exchanges operating in Europe are also looking to launch dark pools and have sought partnerships like the LSE/Lehman venture. Nyse Euronext is teaming with HSBC and BNP Paribas to establish an electronic block trading platform for European listed stocks called Smartpool while SWX Europe, the London-based securities exchange and subsidiary of SWX Group is teaming with US trading technology vendor Nyfix to launch a non-displayed block trading service for Swiss blue-chip equities.

Nyfix also launched its Euro Millennium platform - a UK regulated MTF for non-displayed liquidity in pan-European listed cash equities - in March this year.

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