Fidelity and eight other money managers have set up a joint venture company to launch a private dark pool for buying and selling large blocks of stocks without the involvement of banks and predatory high frequency trading firms.
Fidelity will have the largest stake in the venture, dubbed Luminex Trading & Analytics, which is slated for launch later this month, according to reports.
The move comes as dark pools operated by banks come under increasing regulatory scrutiny. In June, the US Attorney General sued Barclays Bank for allegedly misleading clients about the activities of high frequency trading firms in its dark pool. Liquidnet, another independent private network operator for institutional investors was recently accused of misusing its subscribers' private trading data, while Goldman Sachs has also been in hot water over pricing violations in its crossing network.
Just last week, it was reported that Nasdaq and Bats Trading have approached a number of big banks about taking over operation of their dark pools. The move is being pitched as a cost-saving option for large brokers who are being hit hard by depressed volumes and a more onerous regulatory burden.
Luminex Trading & Analytics is expected to run at cost, saving member firms on the high fees charged by broker-owned networks. Trading on the new venue is slated for later in the year.
The platform will set target trade minimums that are significantly larger than what is currently available in the market. When orders are submitted to Luminex, users must commit to a minimum block size. Upon detection of a match, an order is guaranteed to execute. Before execution, the parties will be given an opportunity to increase the size of their block trade. Through Luminex’s trading protocols, managers can trade with each other and have more control over their experience.
“Despite significant improvements in the overall efficiency of today’s equity markets, sourcing block liquidity remains a complex and challenging endeavor for investment managers,” says Michael Cashel, interim-CEO of Luminex. “Luminex is a well-capitalised, independent platform providing a low-cost solution to that challenge while putting investors’ interests first. Our goal is to build trust among users through transparent trading rules and protocols and efficient execution.”
The board of the new venture will comprise one representative of each of the nine investment managers that form the consortium - BNY Mellon, BlackRock, Capital Group, Fidelity Investments, Invesco, JPMorgan Asset Management, MFS Investment Management, State Street Global Advisors, and T. Rowe Price.
Trading on the platform is slated to begin later this year.