Volume begets volume.
That’s the thinking behind LeveL ATS’ strategy to get more order flow and grow its business. First, build its client book. Then, build the book of orders from each client. That, in turn, will yield more order flow and push trading volumes higher, the alternative trading system operator believes.
Chief executive Whit Conary and his team have been aggressively talking to former and potential new clients to get them involved in the dark pool. So much so, that LeveL has grown its client base back to 98 percent of the level it had achieved before the firm’s parent company agreed to pay an $800,000 fine to the Securities and Exchange Commission in a case involving the protection of information about its customers’ unexecuted orders .
Conary told Traders Magazine in an exclusive interview that the Boston-based venue now has orders coming from virtually all of pre-settlement clientele these days. This compares to the 50 percent of LeveL’s clients that were sending orders immediately after the settlement was announced at the outset of October.
This has come as overall trading is down, across lit and unlit equities trading venues. “As the consolidated volumes have become somewhat lackluster, we have seen marked improvements in our market share which is up 45 percent since last October,” Conary said.
Recent data from Rosenblatt Securities, which tracks dark pool activity, confirm LeveL’s approach to begetting volume is bearing fruit. LeveL’s volumes rose 18.7 percent month-over-month to 24.1 million shares in January from 20.3 million shares in December. Moreover, it has grown its market share to 0.37 percent of all consolidated trading volume compared to 0.26 percent last October, a 29.7 percent gain.
Now with clients returning to LeveL and order routing and flow picking up, Conary told Traders that average daily trading volume for March is running around 45 million shares a day, double-counted, or roughly 65 percent of what it was pre-announcement.
While that is off 45 percent from volume of 79.9 million shares LeveL reported the day before the SEC case cropped up in October, broad market volumes are down as well. Consolidated market volume as reported via BATS Exchange was 5.9 billion shares on March 25 while it was 6.4 billion shares October 25, meaning volume on and off exchanges is off 5.5 percent, roughly.
Traders Magazine spoke with Conary back in October 2012 when he confirmed the dark pool experienced a drop-off in order flow in the wake of the settlement between parent eBX LLC and the Securities and Exchange Commission on Oct. 3.
In the case, the SEC said in its complaint that the smart order router of LeveL’s technology provider, the Lava Trading unit of Citigroup, kept in its memory information about LeveL subscribers’ unexecuted orders. The router then used that information to make routing decisions for the benefit of its own order routing business.
That “memory feature,” the SEC said, enabled the Lava router to retain a record of any order submitted to various market centers, and to use that information to make automated routing decisions. The feature retains the symbol, side, source, quantity, and received time for these orders; and can be turned on or off.
In an Oct. 3 letter to customers, Conary said Lava confirmed in April 2011 that it no longer was using the feature when it involved LeveL subscribers.
In that letter, Conary wrote that Lava, under its contract, is required to maintain confidentiality of subscriber information and “is not authorized to use the order information from LeveL for any purpose other than order routing.”
Customers’ information may not have been disclosed, in any event. According to the settlement documents, the SEC wrote, “There is no evidence that information about LeveL’s unexecuted orders was displayed, or otherwise communicated to, clients of [Lava] or other third parties.”
Since the settlement last October, Conary and his staff have visited clients and gotten the word out that things are OK at LeveL and it remained committed to protecting its clients and their business. Along with more clients trading in LeveL, these customers are placing orders for a growing number of stocks. According to Conary, LeveL trades in over 3,800 symbols now, up from 3,627 in February a gain of 4.5 percent. This is up 16 percent from the 3,196 symbols that traded last October after the settlement.
Conary is optimistic that volumes will continue to grow as clients send in more orders, particularly for small and mid-cap stocks, where portfolio managers can find more alpha. Fifty-two percent of the trades executed at LeveL are in small- and mid-cap stocks, in line with its historical average.
“This small- and mid-cap volume helps to present differentiated liquidity to the client,” Conary said. “This reinforces the value proposition we provide as a mechanism for the sellside to source liquidity and we are continuing to strengthen in this regard.”
