LeveL ATS has added a connectivity and risk-check provider that specializes in low-latency trading to help increase the crossing network’s trading volumes. LeveL’s agreement with Mantara will introduce sponsored-access liquidity to the ATS and should help it gain more of this business once new rules go into effect this summer.
The connectivity offers both the buyside and sellside Mantara’s risk-checking software. This alliance with Mantara provides clients with a compliance risk check, which some firms might not have and need. In addition, this new access gives clients another dark trading venue via LeveL, as well as makes them compliant with new sponsored-access rules, said Steve Miele, head of sales at LeveL ATS.
Previously, the buyside and sellside could access the market by via "naked access," which refers to an absence of risk checks. Naked access is the practice of providing broker-dealer customer orders low-latency access to exchanges without first performing pre-trade risk checks on them. The Securities and Exchange Commission has banned naked access with its new rule, taking effect in July. The rule mandates that broker-dealer orders will have to undergo pre-trade risk checks before they reach the exchanges.
"We have no sponsored access liquidity at the present time," Miele said. "This alliance with Mantara opens us up to liquidity that doesn’t normally interact with us."
While it might appear that the additional layer of risk checks will add a degree of latency to orders, LeveL hopes the benefit will mean larger average trade sizes and more overall volume. Miele declined to estimate how much additional liquidity the ATS would get from this new connectivity, but noted there are limited offerings in the risk check space.
The Mantara choice was simple, he said. LeveL wanted to use an independent, third-party provider of risk checks rather than a firm that could have potential order-routing conflicts.
Miele also hopes LeveL’s affiliation with Mantara will translate into more trades and larger trade sizes. According to Rosenblatt Securities’ monthly study of dark pool volumes, in December, the ATS’s average trade size was 224 shares. LeveL’s average daily volume was 56.2 million shares. That compared with an average trade size of 226 shares in November and 60.4 million shares ADV.
The buyside is increasingly pushing for more control over where their orders are routed and more options. Mantara goes beyond just linking its clients to LeveL, said Patrick Egan, head of sales for Mantara. It also accesses ConvergEx’s VortEx, ConvergEx Cross, Credit Suisse’s Crossfinder and Millennium ATSs, as well as and Goldman Sachs’s SigmaX, he said. And the vendor is in negotiations to provide access to Knight’s Knight Link, UBS’s PIN and Morgan Stanley’s MS Pool.
"We’re seeing more of that trend," Egan said, referring to the buyside wanting more direct connectivity to the dark markets. "We see an opportunity here for business, and it will grow in the future."
Egan declined to provide an estimate for growth in this area and hookups, but said Mantara’s client base stands at 32 customers, spanning large firms like UBS and Wedbush, to small proprietary trading firms. And interest keeps pouring in for dark pool connectivity, he said, which has also led some to inquire about the firm’s expressWay smart order router, which it is configuring for some clients.
Dennis Fox, director of trading at Munder Capital Management, said the more places he can access dark liquidity from the better. Getting the best fills, he added, depends on the market capitalization of the company a firm wants to trade in, liquidity and volatility of the stock. No one dark venue, in his opinion, is best. But being able to directly access a selection of them can increase his chances of getting the fills he wants in the size he needs.
"The idea is to send orders to destinations that are the least likely to be used by high- frequency traders or anyone trying to gather information about an institutional order," Fox said.
