Turquoise chief says industry profile has changed as block trading soars


The volatility sparked by the global coronavirus pandemic has led to a shift in how traders are interacting with larger-sized trades, the chief executive of the London Stock Exchange Group’s (LSEG) Turquoise has said.

Speaking to The TRADE, Dr Robert Barnes, global head of primary markets at the LSEG and CEO of Turquoise, said that the profile of the Turquoise Plato dark pool has evolved over time from mainly small sized trades several years ago in 2016, to the majority of activity being large-sized electronic blocks in the first quarter this year.

Statistics from Turquoise and Rosenblatt Securities seen by The TRADE show that just 3% of activity on Turquoise Plato was executed through conditional midpoint block workflow via Turquoise Plato Block Discovery in 2016, but that has now surged to more than 50% of activity in the dark pool.

At the height of the crisis on 9 March this year, now dubbed ‘Black Monday 2020’, the percentage of activity executed in Turquoise Plato that was matched via its block trading platform soared to a significant 59%. Barnes said that the figures show that the market has evolved so that larger sizes can now trade efficiently during times of extreme volatility.

“We hear a lot about the high volatility and high volumes, but in a way, we have always known that order book turnover tends to scale with volatility,” Barnes commented. “However, we have seen an underlying change in the profile of how the business is getting done, even in these extraordinary times.

“The insight is that during these times when the markets are becoming volatile, prices are moving a lot, and bid-offer spreads are widening, it has become more straightforward to get business done by trading blocks. The data clearly shows how the industry has changed from trading at midpoint in small-sizes, to executing electronic block trades at the midpoint.” 

Block trading has steadily increased in recent years, driven mainly by MiFID II’s double volume caps (DVCs), which limits transactions that can be executed under waivers at 4% at a trading venue level and 8% for all EU trading venues, leading to the number of orders executed above the Large in Scale (LIS) threshold has increased significantly.

LIS trading under MiFID II benefits from waivers enabling participants to negotiate trades without pre-trade transparency. Ahead of the implementation of MiFID II in 2018, major European exchange operators including Cboe, LSEG and Euronext, launched block trading platforms to meet the demand for LIS services.

MiFID II also brought about more transparency through the pre- and post-trade transparency regime. As a venue, Turquoise must time stamp each trade to the precision of one microsecond meaning that investors can see the activity happening in the order books. Barnes told The TRADE that this has boosted the quality of the market.

“Thanks to post-trade transparency, investors in Europe are now continuously able to see all of the activity happening in both the lit and dark order books,” he said. “With this enriched information, we are seeing much larger sized trades happening at a price, at a particular point in time, in real-time. This really adds to the quality of the market and shows that the innovation is working, as the buy- and sell-side community have come together to help investors get their business done.”



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