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Order Book Innovation Delivers Midpoint & Block Trading Results

Traders Magazine Online News, March 22, 2019

Robert Barnes

As the industry gathers for the 2019 EMEA Trading Conference in London, the largest single-day event focusing on electronic trading, it seems fitting to review what happened in the first full year of MiFID2 compared with expectations three years prior. When 900 electronic trading experts of FIX Trading Community gathered from 22 countries at the 2016 EMEA Trading Conference in London, they were asked their opinion about the European trading landscape in 2018 post MiFID2.

More than half the audience, 51%, said they expected in 2018 “More electronic Block Trading”. With the next question, it was our privilege to see distinguished practitioners clearly express their independent opinion that Turquoise was their preferred venue for order book innovation.

Independent Rosenblatt Securities 2018 Year-in-Review confirmed Turquoise as the largest European dark pool. Turquoise Plato™ ended the year as the fastest growing and biggest dark pool – achieving all-time record activity. Turquoise Plato™ is now #1 of 20 venues evaluated by Rosenblatt Securities, thank you to our customers.

Rosenblatt Securities observed during 2018 that MiFID2 eliminated broker crossing networks and, combined with the impact of MiFID2 double volume caps, contributed to a steep drop in the annual share of trading by dark pools. The changes favoured venues that focus on block trades which are exempt from the caps. The share of trading of European electronic block trading services evaluated by Rosenblatt Securities including Turquoise grew to
just under 30% of European dark pool value traded.

The following Turquoise chart shows that Turquoise Plato™ continues to set year on year records for value traded. All of these trades as matched at midpoint of the primary best bid and offer for potential price improvement. The interesting trend is the remarkable growth of Turquoise Plato Block Discovery™ from less than 5% to more than 45% of all the Turquoise Plato™ midpoint value traded by calendar 2018, reflecting the significant change in investor behaviour by sending much larger orders to the market.

Fast forward to February 2019, and customers using Turquoise Plato Block Discovery™ have traded more than €172 billion – more than any other provider as
a fully automated service without the fading associated with manual firm up models. The insight is that electronic block trading at midpoint works and Turquoise is fully adopted by the global investor community, ready to scale beyond UK and European markets.

Turquoise customers on 31 January 2019 set a new daily record of €653m value traded via Turquoise Plato Block Discovery™, contributing to a new weekly record of €2,581m from 28 January to 1 February 2019.

The puzzle facing exchanges worldwide is that electronic order books shrink trade size. A large order matching against small orders leads to small trades –
and published data shows that European exchange order books have shrunk and converged to an average of around €10,000 per trade. Why does this matter? Because institutional investors, such as asset managers, pension funds and insurance companies, handling large trades – ultimately on behalf of end investors – will suffer stronger negative market impact and signalling risk in such an environment.

Working together for years with buy-side and sell-side, Turquoise designed and refined a multilateral model where the average trade size of electronic block trading on Turquoise midpoint order book has grown for blue chips with LIS above €500k to more than €1m per trade via Turquoise Plato Block Discovery™. This is 100x larger than the average trade size of €0.01m per trade.

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