Turquoise CEO Barnes Aims to Continue Growth

Terry Flanagan

In 2006 Dr Robert Barnes met Neelie Kroes , then EU competition commissioner, to discuss the role of lit and dark books in equity trading before the Markets in Financial Instruments Directive was announced.

In August this year Barnes was named chief executive of a business launched after MiFID was passed – Turquoise, the pan-European multi-lateral trading platform that is majority-owned by the London Stock Exchange Group. He replaced Natan Tiefenbrun who left the company.

Barnes was previously chief executive of UBS MTF, the largest in Europe according to Fidessa, and a managing director in equities at the Swiss bank. He was also chairman of the Securities Trading Committee of the London Investment Banking Association between 2004 and 2009.

“I spent 19 happy years at UBS and as a customer of exchanges, I can well understand the customer perspective,” Barnes told Markets Media. “A number of the group’s senior management also come from a trading background.”

 Robert Barnes, Turquoise

Robert Barnes, Turquoise

Turquoise has passed its five-year anniversary after formally launching on 22 September 2008 and trading in over 1,200 stocks across 13 European countries. At the time management said the venue was on target to reach 5% market share by the end of 2008.

In November this year Turquoise offered access to 18 European countries and four central clearers — EuroCCP, EMCF, LCH.Clearnet and Six x-clear — through one connection.

In its half-year results to the end of September, LSE Group said the value of shares traded on Turquoise was €340.1bn, 69% more than in the six months to September 2012.

Turquoise has two discrete order books — Turquoise Integrated Lit with price priority which includes hidden orders, icebergs and large blocks and Turquoise Midpoint Dark with size priority and user-defined minimum execution size. Barnes said the total value traded on Turquoise is up more than 100% year-on-year to October 2013.

“A year ago we differentiated our offering in Turquoise Midpoint Dark to prioritise orders by size and firms increasingly are developing algos and new order types specifically for this order book,” he added.

Turquoise Midpoint Dark has both Continuous Midpoint matching and Turquoise Uncross which has a unique feature of random intra-day auctions according to Barnes.

“Both buying and selling sides are resting passive orders, and it is Turquoise rather than any market participant that triggers randomly an uncross event that can result in trades. This allows the buy side to get higher quality of execution than at other venues,” he added.

For example, in a liquid stock like Sanofi, the French pharmaceutical company, Turquoise Uncross occurs randomly every five to 10 seconds while for a less liquid stock the random period can increase to between five and 45 seconds. The random uncross makes it harder for the event to be targeted by aggressive trading strategies.

Dr Darren Toulson, head of research at LiquidMetrix, an independent financial research and performance measurement company,  said in a statement that the number of times a trade on Turquoise Uncross occurs at a price outside of a EBBO bid/offer price is lower than rival MTF venues offering continuous, instantaneous matching and the percentage of times that a trade coincides with a price movement of the primary market in the second following execution is also lower.

LiquidMetrix analysed 1.2m executions on Turquoise Uncross in the first week of September 2013.

Another reason for the rise in volumes is that Turquoise has added 800 additional stocks in the last few months and second lines in more than a dozen dual listed securities such as Ryanair, which is listed in both London and Ireland.

“According to Thomson Reuters the value traded on Turquoise since October 2012 has grown faster than any other platform with meaningful liquidity,” said Barnes.

On 4 November Turquoise also changed the clearing of all Spanish trades from EuroCCP to EMCF at the request of members to make it easier for them to trade Spanish stocks.

Turquoise analysed its most active 1,700 stocks and found 80% of the value traded was in the top 240 names, including 48 of the EURO STOXX 50 constituents. The two missing names were Spanish and customers said the majority of Spanish names they traded internationally were cleared on EMCF, while Turquoise only offered EuroCCP which would require them to bear additional cost.

Turquoise uses the LSE Group’s MillenniumIT system which will be updated this month.

“In December our next system update will randomise the reloading peak sizes of iceberg orders with individual public trade identifiers for each fill,” said Barnes. “We will also allow self-execution prevention for those customers that prefer to avoid matching against their own orders. Customers also will be able to default to Turquoise Uncross when entering orders into the Turquoise Midpoint Dark book.”

The European Council has voted to set caps of between 4% and 8% on dark pool trading but Barnes said: “As a midpoint matching venue we are well placed relative to the direction of regulatory travel.”

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