Barclays’ European Dark Pool Gains

Terry Flanagan

Barclays’ decision to build an electronic equities platform from scratch in Europe four years ago has helped it become the fastest growing dark pool in the region according to Eric Krueger, head of program and electronic sales for European equities.

In 2008 Barclays did not have an equities business. During the financial crisis Barclays bought the North American operations of Lehman Brothers out of bankruptcy giving the UK bank an equities platform in the US.

In Europe Barclays decided to enter a crowded market by building an equities franchise organically and developing an electronic platform in-house, despite a background of decreasing volumes and commissions across the industry. The challenging environment may have helped Barclays according to Krueger.

“It’s been difficult for the competition to invest in their product during this time,” he said. “We’ve had to heavily invest as we were building a business from scratch, and I think we’ve leapfrogged other firms from a product perspective.”

Market share for equities sales and trading in Europe, Middle East and Africa grew from 3.1% to 2009 to 3.8% in 2012 and the bank has the third largest share, 7.25%, on the London Stock Exchange according to a recent presentation to Barclays’ investors.

Barclays LX is the seventh largest broker dark pool in Europe and the fastest growing, with volumes up 126% year-on-year, according to Rosenblatt Securities’ monthly dark liquidity tracker.

“We aim to continue to grow market share by addressing our clients trading needs through product innovation,” said Krueger. “We’ve shown this through our liquidity profiling framework, capital commitment feature and transparency around trade reporting.”

In the US Barclays introduced liquidity profiling in its dark pool to monitor all trading activity in real time and the same process is used in Europe. “As a result, we can expose a large pool of liquidity to our clients, while protecting them from any aggressive behaviour. Clients have become comfortable with how we police our pool and this has helped fuel our growth in LX,” Krueger said.

An automatic capital commitment feature was introduced for the bank’s most used strategies in Europe four months ago and may be launched in Asia next year.

“Our clients can now anonymously receive capital from Barclays with the click of a button,” Krueger said. “This helps them source additional liquidity, while lowering execution costs and order duration.”

Barclays also chose to display the proportion of each stock traded electronically and through its high-touch platform to increase transparency and help clients choose the right trading strategy. The statistics are displayed on Bloomberg for its clients.

In the US Barclays LX has become the largest dark pool and Krueger said he is confident that the bank can be as successful in Europe.

“We can leverage that US strength while having some competitive advantages of being Barclays in the UK.  We are the largest UK retail stockbroker, we’re gaining corporate brokerships and are already third in LSE market share,” Krueger added. “We are realistic on how long it will take, but we are committed to getting there.”

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