ITG Looks to Expand in Europe

Terry Flanagan

ITG’s European dark pool volumes have almost doubled in the past year and the agency broker wants to expand in the region by adding research and other asset classes according to Rob Boardman, chief executive of Europe, Middle East and Africa.

“European Posit has almost doubled volumes year-on year as it provides very different liquidity from public markets, trades lots of blocks that are more than £1m and is busiest in the morning while public markets are busiest in the last hour and a half,” Boardman told Markets Media.

In its second quarter results statement ITG said that in Europe average daily value traded in its Posit dark pool was $674m, up from $377m in the same period of 2012. Over the same time period ITG’s international revenues outside the US grew from $45m to $54.7m.

Boardman said activity in European equities has increased as negative macroeconomic headlines about the region have faded and investors have become more comfortable trading in the dark.

“The dark market has grown more than 30% year-on-year as investors have realised dark pools are more cost efficient and you can get better execution with less market impact. At one of our seminars last year an index manager said that if he could not trade in dark pools it would mean that people who have saved for pensions all their lives would have to retire one year later,” he added.

According to Boardman, other factors behind ITG’s growth in Europe were the introduction of a Dark Allocator algo in 2011 which allows buy side traders to search for liquidity across all available dark venues, not just European Posit, and ITG’s ability to retain its senior front office staff in the region despite the challenging equities environment and the firm’s cost-cutting measures. In April last year ITG announced cost reductions focused on headcount, market data and administrative costs in order to save $20m this year.

“Equities has been really tough for the last three years and one of our differentiators is that we kept our senior sales and trading staff. In 2009 we decided to insource all of our back office and we lost some back office staff between 2010 and 2011, but kept our front office team intact,” he said.

To continue to gain share in the region ITG may add research products and other asset classes to its platform. In the US the broker formed ITG Investment Research after acquiring Majestic Research in 2010 for $56m and adding Ross Smith Energy, the Canadian oil and gas research firm, for $38.5m the following year. However ITG  does not have any equity analysts in Europe.”We would like to add investment research products which are consistent with ITG’s DNA and could offer something different that is data-driven, as in the US,” said Boardman.

Last year in the US ITG launched transaction cost analysis service for the institutional foreign exchange market. “We are looking to introduce several other asset classes in addition to equities. Clients have been asking for foreign exchange transaction cost analysis, and we also want to add futures, options and fixed income although some of these are multi-year projects,” added Boardman.

He stressed that is important for ITG to become a multi-asset platform as some large buy side clients have started to merge their desks across asset classes so that one trader looks at both equity and debt in the same company, and then hedges the exposure with derivatives. Buy side clients have also been asking ITG to provide systems to manage their commission sharing agreements, which they use to allocate research and execution costs when trading. For example, a fund manager may execute a trade at ITG but give part of the commission to a research analyst at an investment bank who provided the trading idea.

“Early adopters of CSAs have found they have many agreements and have been asking us to aggregate balances and provide administration tools. We have rebuilt our CSA system to be truly global and we have just hired someone full-time for sales,” Boardman said.

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