Turquoise Plato Shows Power Shift to Buyside

Shanny Basar

Plato Partnership, the non-profit group, has agreed a cooperation agreement with Turquoise, the multi-lateral trading platform majority-owned by the London Stock Exchange Group, as the buyside looks influence market structure under new European regulations.

The agreement formally brings together the buyside, sellside and a trading venue to deliver increased efficiencies in anonymous European equity block trading for the first time.

Nej D’jelal, Plato co-chair and head of electronic equities product, Europe, Middle East and Africa at Barclays, told Markets Media that Plato aims to simplify market structure, cut trading costs and benefit end investors.

D’jelal said: “Plato Partnership has the scale to enter into partnerships, and its members represent the whole value chain from sellside to buyside, which allows members to mould the market model.”

Plato Partnership’s members include BlackRock, Norges Bank Investment Management, Barclays and Goldman Sachs.

In a report last year, “Trends in Equities Trading 2015”, consultancy Greyspark Partners said that in equities trading there had been a shift in the balance of power to the buyside.

Greyspark said in its report that buyside clients were now as sophisticated as banks in running automated market-making businesses to meet their own demands. Russell Dinnage, senior consultant capital markets intelligence at Greyspark Partners, told Markets Media at the time: “There has been a change in buyside behaviour which is shown by their creation of new trading models.”

The report had highlighted the launch of Plato and Luminex Trading & Analytics, a buyside-only cash equities dark pool, by nine of the world’s largest fund managers at the beginning of 2015.

Mike Bellaro, Plato co-chair and global head of equity trading at Deutsche Asset Management, said in a statement: “Plato Partnership is very significant for the buyside community. It provides a unique value proposition that considers the needs of the marketplace, provides for liquidity and reduces costs – ultimately improving the trading experience for our end clients.”

Turquoise will rebrand its dark services, but not its lit order book services, as Turquoise Plato Block Discovery and Turquoise Plato Uncross. Uncross features random intra-day auctions so that in a liquid stock like Sanofi, the French pharmaceutical company, auctions occur 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. Block Discovery facilitates trading in larger block orders by matching block indications. On identifying potential matches, the service will require participants to send firm qualifying block orders to Uncross.

Dr Robert Barnes, chief executive of Turquoise, told Markets Media that the trading venue and Plato Partnership both share the belief in open access and of achieving best execution on a continuous basis  of large blocks in Europe.

“A decade ago the sellside and exchanges met to decide on the principles of market structure,” Barnes added. “Now the buyside is focussing on block trading in an era of low returns and negative rates.”

Trading in large size is likely to become more difficult when the MiFID II regulations, covering financial markets in the European Union from 2018, place caps on volumes of dark pool trading of 4% in any one stock on any dark venue and 8% of total volume across European dark venues. In addition, brokers will not be able to cross internal flows under MiFID II, without registering as a systematic internalizer.

However Large In Scale trades, above a certain size, are exempt from the dark pool volume caps. Barnes said Turquoise Plato already works for Large in Scale execution and meets MiFID II requirements.

“The average size of trades on Turquoise Plato is between 10 and 25 times larger than the average in other dark pools which is a significant part of our differentiation,” Barnes added.

Plato Partnership includes a Market Structure Innovation Centre – a research fund to sponsor academic research and analysis to improve execution.

“We want to make the debate more empirical and objective and so research is fundamental,” added D’jelal. “Research is funded by member subscriptions and revenues from partnerships, none of which goes back to members.”

As a result Plato Partnership can work with commercial and for-profit endeavours, while maintaining its not-for-profit status. The research will allow the partnership to eventually develop standards for best execution of large block trades.

Barnes said: “Turquoise Plato is a signal to the wider community to get involved and determine how market structure evolves, rather than sitting on the sidelines.”

Plato did not take an equity stake in Turquoise in order avoid a conflict of interest and D’jelal added that as an MTF, Turquoise Plato is required to treat all clients equally, regardless of whether they are Plato members.

D’jelal said: “A subset of board members will focus on Plato’s strategic direction and future agreements similar to Turquoise, and broadening membership beyond the current 15 firms.”

He continued that Plato is currently focussed on delivering its objectives in Europe but has not ruled out other geographies and other types of trading.

“We have not signed an exclusivity agreement with Turquoise and there are other standards that will need to be developed,” added D’jelal.

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