European Brokers Eye Benefits Of Dark Pool Outsourcing

Terry Flanagan

One pan-European lit trading facility is looking to capitalize on the recent move by some banks in the region to outsource their trading infrastructure, in a bid to cut costs, by enabling brokers to set up dark pool platforms for as little as €10,000 per month.

Quote MTF, which is regulated from Hungary, is offering its new Qube service to allow brokers or venues to run either fully-outsourced multilateral trading facilities (MTFs) or broker crossing networks, utilizing Quote MTF’s technological, regulatory and surveillance capabilities.

“We are bringing MTF-style competition to this marketplace which will mean it will be more streamlined and businesses will run much more along the lines of software companies rather than listing exchanges and banks by utilizing technology like our own matching engine and our own human resources,” Christian Bower, commercial director of Quote MTF, told Markets Media.

“We are leveraging all of this to produce a much cheaper product and service that still offers the types of facilities and crossing venues that people expect and it makes sure the buy side and end investor still has choice as to where they invest.”

Its hosted trading platform will be based on Quote MTF’s Thymex technology and offers execution speeds of 250 microseconds, making it the fastest matching system in Europe, according to the firm. Thymex has powered Quote MTF since its launch in April 2011, as well as being used on the Canadian alternative trading platform, Omega ATS.

Bower says that all of its outsourced offerings will come with a regulatory license and will be MiFID compliant. Firms can tailor their platforms to suit their needs with different transparency levels, matching mechanisms and fee models. The cheapest of which starts at €10,000 per month.

Banks in Europe are being forced to look at re-evaluating their dark pools as new regulations, via MiFID II, may mean that these venues, which enable investors to trade large blocks of shares anonymously, become reclassified as either MTFs or systematic internalizers. Dark pools do not fall under any of the current MiFID venue regimes and operate under less strict pre-trade transparency rules than regulated exchanges and MTFs.

Quote has struggled to gain serious market share of the European equities market since its launch last year. According to Thomson Reuters, Quote MTF traded €934.6 million in April, representing 0.13% pan-European market share.

“With trading volumes where they are now and commission rates where they are, the pressure on headcount and the pressure on margins, we decided that we needed a more efficient way of doing this as we have excess capacity in our operation to utilize in many other areas,” said Bower.

“There are also 300 registered MTFs in Europe. It’s simply unnecessary to be so diverse so we decided that if we can consolidate it all in one place on one matching engine with one set of guides then that would be a very interesting initiative.”

Other banks have begun turning to external providers, such as NYSE Technologies, to run their venues in a bid to cut costs and also remain flexible enough in case of regulatory upheaval.

“This outsourced service model will assist organizations of any size to launch and operate a regulated trading venue,” said Tamas Madlena, chief executive of Quote MTF.

“We have seen keen interest in outsourcing from existing venues that can no longer justify the overheads of operating a platform. Centralizing many of these venues also creates critical mass, allowing exchange subscribers to reduce technology costs and access more venues through fewer channels.”

Related articles

  1. OPINION: Dark Pools Jump to Front of Regulatory Queue

    Dark pools are an important source of liquidity, but there are pitfalls for traders, Eugene Budovsky of Credit...

  2. Long-time off-exchange trading platform operators Liquidnet and BIDS Trading are being acquired.

  3. Fidelity Capital Markets Shines Light on Dark

    Capital markets analyst assesses report that pioneering dark-pool operator is up for sale.

  4. Refinitiv's Bryan Labelle sees a more connected framework helping traders access liquidity.

  5. Markets hold up well amid 'incredible' volume and volatility.