Oslo Bors invites large equity orders to return to a regulated stock exchange environment. This will be made possible by the North Sea dark pool.
“We want to provide a service to those who currently submit orders to fragmented and unregulated dark pools”, comments Bente A. Landsnes, President and CEO of Oslo Børs.
Oslo Børs will offer new dark pool functionality via its trading system from 20 April 2015.
“Larger investors increasingly want the protection that they have found dark pools offer. The dark pool functionality we are introducing allows us to offer this in a well-regulated and monitored stock exchange environment with reference prices that are directly related to pricing on our transparent market”, comments Bente A. Landsnes.
A dark pool is characterised by the fact that information about investors’ orders is not published until the trade is complete. As the pre-trade orderbook information remains unpublished, the terms ‘dark pool’ and ‘dark trading’ are used.
“We want as much trading as possible to happen within regulated markets, and we are committed to maintaining the trust of investors, strengthening liquidity and ensuring good price formation”, comments Bente A. Landsnes.
The prices in Oslo Børs’ North Sea dark pool are derived from the Oslo Børs transparent order book The North Sea price is determined by the midpoint between the best bid and offer prices. All North Sea trades are published immediately, and Oslo Børs’ Market Surveillance department is able to see all orders that are entered and all trades.
Over the past few years, an increasing proportion of trading in shares listed on Oslo Børs has taken place in dark pools that have limited amount of access, surveillance and regulation. Dark pools have emerged because investors want to protect themselves from market participants who exploit knowledge of their orders to trade against them and who therefore make it more difficult to execute larger orders at a correct market price. The result is that a good 10% of all trading in Norwegian shares happens in various forms of dark pools.
“Our aim is to concentrate liquidity in Norwegian shares onto the Oslo Børs marketplace. Oslo Børs wants to be the first port of call for investors seeking liquidity”, comments Bente A. Landsnes.
The North Sea dark pool is intended for large orders. One mean to this end is the size prioritization in North Sea, which ensures larger orders being prioritised over smaller orders. Investors are also able to choose the minimum execution size permitted to match their order in the trading system. Trades are executed on a continuous basis when orders are crossed in the North Sea order book. In addition, there will be carried out periodic auctions at intervals of between 10 and 20 seconds (Turquoise Uncross™). These random-interval auctions make it even more difficult for aggressive market participants to ‘read’ the level of interest in the North Sea orderbook and to trade against this interest. The Turquoise Uncross™ functionality is introduced by Oslo Børs as a part of their strategic cooperation with the London Stock Exchange Group.
“Turquoise welcomes the news that Oslo Børs is adding Turquoise Uncross™ functionality in its North Sea Dark Pool to enhance its offering for investors. The randomized intraday mechanism allow both the buying and selling sides to rest passively in the order book simultaneously, and investors will gain higher quality of execution than at most venues,” Robert Barnes, CEO of Turquoise says.
Oslo Børs launched the first version of North Sea in 2011. The older version, however, has limited functionality, and has only been used to a limited extent by investors trading on Oslo Børs.