Pragma Securities will launch a new dark pool tomorrow that is said to be the first to offer benchmark trades at the open, close and throughout the day.
The new ATS is called Onecross. It will offer an opening cross (market on open) and a closing cross (market on close), according to an email sent to Pragma clients yesterday obtained by Traders Magazine. Onecross will compete with the primary markets with the two crosses.
Pragma will also roll out two separate partial-day crosses for investors seeking the volume weighted average price. The two partial-day VWAP crosses will run from 11 a.m. until the close and from 12:15 p.m. until the close. (Collectively, the crosses at the open, close and the two partial-day VWAP crosses are said to be the first of their kind in a dark pool).
As the VWAP orders match, indicative fills will be sent to each client so that orders don’t get over-executed. The actual closing VWAP price will be sent to clients at the end of the day.
Pragma is New York-based provider of quantitative trading solutions. The firm is best known for its dark pool aggregator OnePipe and its relationship with Weeden & Co., a Pragma investor.
Onecross will be open to both the buyside and sellside. It will also have more conventional features that other dark pools offer. These include a continuous all-day VWAP cross and a continuous all-day match.
The dark pool VWAP function is attractive, according to one buyside trader, because the price is simply a calculation and orders avoid market risk. He said that a VWAP order left with an upstairs broker could present a problem if a big print went up. That could lead the broker to chase the stock in the marketplace at higher prices.
Doug Rivelli, chief executive of Pragma Securities, said Onecross was designed to stem leakage and avoid market impact, while at the same time, offer clients what they wanted in a next-generation crossing network.
"Clients told us there weren’t any good crossing systems that allowed them to target the benchmark that they were being held to and being measured against," Rivelli said.
"This is not just a new twist on the midpoint cross," he said. "This is a dramatically new crossing concept, which is the concept of benchmark-specific crossing."
The product should appeal to any trader whose performance is tied to a benchmark, Rivelli said. Passive investors like index funds and unit investment trusts should find the closing cross attractive, he said. But even long-only investors who are looking to match the previous night’s close would like the opening cross. The reason? No footprint and the potential to get the entire trade done.
Rivelli said the primary market offers fundamental problems for clients who have block-size orders or sensitive orders that are a large percentage of the average daily volume. These "blocky" or "sensitive" orders send signals that there is a buyer or seller in the market, he said.
NYSE Euronext did not respond to a phone call and an email for comment.
Brendan Cummins, a Pragma director, said investors have avoided the open in particular, owing to a lack of liquidity. He thinks that if a product could reintroduce liquidity at the open, investors would then be more interested to trade. Cummins also thinks the close presents a huge opportunity to capture business, mainly because that’s when the heaviest volume of trading gets done.
The on-open cross runs from 8 a.m. until 9:27 a.m., while the on-close cross runs from 8 a.m. until 3:59 p.m.
Tim Sargent, president and chief executive of Quantitative Services Group, which measures trading performance for institutional money managers, said he had not heard about Pragma’s new dark pool. As it was described to him, he called Onecross an "innovative" product because of its benchmark offering. "In a dark pool, this is a novelty," he said.
He agreed that the open lacks liquidity. He attributes the lack of liquidity to the fear of opportunistic traders gleaning information from orders displayed in the market. He also thought Onecross could increase liquidity on the close, as well. "Everyone is concerned about signaling issues," Sargent said.
Consequently, for the crosses at the open and close, he thinks that institutional investors will "leap to it and try it out." That’s because orders won’t leave a footprint. Besides, it doesn’t cost anything to try a system today, Sargent added.
But he also wondered whether the system would spawn imitators if it became highly liquid and a profitable feature. "To the extent that Pragma is successful, you might see other pools offer the same options," Sargent said.
The system has been up and running since last week, when Pragma began a "soft launch," Rivelli said. He believes that there will be sufficient liquidity for traders to get business done tomorrow, when the system launches. "Onecross is a purpose-built solution to the problems that our clients have," he said. "They are telling us that they will be committing order flow to these matches because they are very unique."
