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April 1, 2013

Rising Through the Ranks

How Barclays Propelled Its LX Dark Pool Into the Stratosphere

By John D'Antona Jr.

Look out, Credit Suisse. Barclays is closing in on U.S. dark pool supremacy.

Simply put, Barclays' LX dark pool is now the second largest in the United States, behind only Credit Suisse's longtime leader, Crossfinder.

Amid a multiyear retooling effort and upgrading of its technologies and more aggressive selling, Barclays' Capital LX dark pool has gained market share that's propelled it to second place among its peers, according to reports from both Tabb Group and Rosenblatt Securities.

It stood at 23 million shares per day in 2011. Then a new set of Barclays executives stepped in with a plan to grow the venue, and average daily volume now stands at 91 million.

In January, 91 million shares, or 10 percent of all volume on dark pools, were traded each day on LX, according to the Tabb Group Liquidity Matrix, a monthly liquidity and pricing report for U.S. equities exchanges, electronic communications networks, dark liquidity pools and crossing networks. This was second only to Crossfinder, which traded 121 million shares or 18 percent of dark volume.

In reaching 91 million shares, LX slipped past Goldman Sachs' Sigma X, which stood at 90 million. In the past two years, as LX was rising, the average daily volumes of both Goldman and Credit Suisse were falling. Overall equity market volume during this period was falling. In 2011, it was 8 billion shares per day and today stands around 6.4 billion shares per day.

Bill White

Rosenblatt Securities, another tracker of U.S. dark pools, reported in its February analysis that LX grabbed 1.41 percent of total consolidated volume of 6.4 billion shares traded daily on all lit or dark venues. That, too, trailed only Crossfinder, which snared 1.88 percent.

"We laid out a plan two years ago to overhaul our offering end to end, gain market share and provide clients with the best electronic trading tools in the market," said Bill White, head of equities electronic trading at Barclays. "The number-two ranking is a reflection of the success of that plan and the strength of our entire equities franchise."

Overhaul

How did they do it? White, along with Bill Bell, who joined in 2011, set about a complete overhaul of the firm's algorithms, built a smart order router and made modifications to the LX dark pool itself. First, White sat down with his engineers and rewrote all the firm's algorithms. Second, White and his team built from scratch a dynamic smart order router for clients. Lastly, Bell and White set out to promote the new products to all their existing clients and new ones as well-both in the U.S. and globally.

And now, Bell said, the results are paying dividends as the desk has seen both its high- and low-touch volume increase, as has the amount of trading flowing through LX. Bell pointed to better order-routing practices and increased awareness of the firm's product offerings via client meetings as keys to its success.