Azure waters ahead
27 November 2013
After 19 years at UBS, Robert Barnes explains his team’s strategy for the multilateral trading facility Turquoise, and the vision for a single European market
Image: Shutterstock
Turquoise’s formation by a number of banks in 2006, to realise the vision of the European single market by forming a single trading platform to trade securities of multiple country markets with a single harmonised rulebook, was largely due to the changes implemented across Europe following the introduction of the Markets in Financial Instruments Directive (MiFID), effective 1 November 2007.
Initially established to advance functional and commercial models relative to the incumbent single country exchanges in Europe, Turquoise has since been at the forefront of innovation. Through a single connection, traders today have the ability to match business in shares and depository receipts from 18 countries with an efficient trading and post-trade model that delivers economies of scale.
Turquoise is now majority-owned by London Stock Exchange Group in partnership with 12 leading member firms. One of the benefits of being part of a larger group can be seen in the shared service level arrangements in place with London Stock Exchange Group. For example, the Turquoise platform runs on the same low-cost technology platform, MillenniumIT, in use across the group. The benefits to members is not just a highly state-of-the-art and resilient platform, but also the similarity of Application Programming Interface (API) of markets that use MillenniumIT.
Partnership with customers is key for Turquoise. Responding to their needs is paramount and has resulted in a number of additions to the offering including the expansion of the number and type of securities available to trade. This responsiveness means that Turquoise is now the fastest growing equities trading platform with meaningful liquidity.
The notion of best execution is a priority for market participants. Pre-MiFID, different countries had different definitions with the most common focus on ‘best price.’ MiFID harmonised the framework across Europe by re-defining best execution as a process to deliver the best possible result on a continuous basis. This principles-based approach effectively empowered investors and market participants with their respective abilities to evaluate, monitor, justify and decide choice of liquidity venue. Investment firms, including those mid-tier firms that traditionally connected only to their respective domestic exchange, are increasingly exploring the benefits of connecting to a pan European multilateral trading facility like Turquoise in order to deliver a better execution result for their clients and diversify their offerings by geography, as a single connection to Turquoise offers trading in shares of 17 additional countries to their home market.
Connection at the trading level is straightforward. Turquoise, along with other MTFs, has innovated also the post-trade space. Members today have a choice of four fully interoperable central counterparties: LCH.Clearnet, EuroCCP, EMCF, and SIX x-clear. Structurally, each CCP nets and facilitates delivery of the European shares for settlement into their respective country’s central securities depository. This means a member may sell on a local exchange and buy on Turquoise with a flat position, for example, at the local central securities depository. The commercial benefits of consolidating clearing through a choice of CCP serving multiple markets are economies of scale via volume discounts offered by the respective CCP. As more retail intermediaries and second tier firms look to become members and efficiently access pan European liquidity pools offered by Turquoise, the opportunity is for prospective members of Turquoise and general clearing member firms already connected to the post-trade ecosystem serving Turquoise to cooperate for incremental business and the additional pan-European choice offerings available through Turquoise.
Turquoise today allows the trading of shares on one of two complementary order books. Turquoise Integrated Lit is a traditional lit orderbok featuring Price priority and includes Hidden orders like icebergs and large-in-scale (LIS). Turquoise Midpoint Dark matches orders in shares pegged to the reference price of the primary best bid and offer (PBBO) of the respective European exchange with size priority and user-defined minimum execution size (MES) for two additional functionalities: Continuous Midpoint matching and Turquoise Uncross, the buy-side friendly randomised periodic series of intraday auctions.
Whereas the lit book gives certainty—but potentially suffers the downside of market impact— the dark pool does not provide certainty pre-trade, but has the benefit of allowing firms’ orders closer to the market without signalling any risk. The benefit of offering two types of orderbooks is that it allows Turquoise to offer complimentary liquidity. The two approaches provide better quality matching towards the benchmark that the investors are trying to meet.
Turquoise Uncross is an innovation that exists nowhere else on European markets. The trade type is a series of periodic, randomised auctions that allow two sides of an order to both be resting and then have the potential to match at a time that is determined by a randomised function. Of particular interest to buy-side firms, Turquoise has seen a significant increase in the value of executions in Turquoise Uncross, up more than three times since the start of September 2013, as more firms opt to use this functionality.
Chart analysis
For charts please refer to Asset Servicing Times issue 78, page 19
Figure 1 shows the period of growth across the different exchanges from October 2012. If you revalue all the platforms to 100 at the start date, the graph will then reflect growth over the last year, Turquoise is currently the fastest growing platform in Europe with meaningful liquidity.
Figure 2 shows daily values traded per day since January of this year. Customers are choosing to trade in Turquoise Integrated Lit and Midpoint Dark orderbooks. The observation is that participations in Turquoise are increasing, including Turquoise Midpoint Dark.
Figure 3 looks more closely at daily values traded in 2013 on Turquoise Midpoint Dark. Customer business is growing in Turquoise Uncross and Continuous Midpoint functionalities. The observation is that the trends of participations in Turquoise Midpoint Dark are increasing, and increasing particularly in Turquoise Uncross, an innovation in market structure.
Now that MTFs have achieved a meaningful threshold of liquidity in pan-European trading, firms can truly deliver best execution for their clients by accessing meaningful choice of complementary liquidity pools. Turquoise aims to make this as simple and as efficient as possible, while at the same time innovating to deliver not just the best experience, but the highest standard of result consistent with principles of integrity, innovation, partnership, and excellence. This is exemplified, for example, through Turquoise Uncross, the innovation which provides high size and best in class quality, independently verified.
Initially established to advance functional and commercial models relative to the incumbent single country exchanges in Europe, Turquoise has since been at the forefront of innovation. Through a single connection, traders today have the ability to match business in shares and depository receipts from 18 countries with an efficient trading and post-trade model that delivers economies of scale.
Turquoise is now majority-owned by London Stock Exchange Group in partnership with 12 leading member firms. One of the benefits of being part of a larger group can be seen in the shared service level arrangements in place with London Stock Exchange Group. For example, the Turquoise platform runs on the same low-cost technology platform, MillenniumIT, in use across the group. The benefits to members is not just a highly state-of-the-art and resilient platform, but also the similarity of Application Programming Interface (API) of markets that use MillenniumIT.
Partnership with customers is key for Turquoise. Responding to their needs is paramount and has resulted in a number of additions to the offering including the expansion of the number and type of securities available to trade. This responsiveness means that Turquoise is now the fastest growing equities trading platform with meaningful liquidity.
The notion of best execution is a priority for market participants. Pre-MiFID, different countries had different definitions with the most common focus on ‘best price.’ MiFID harmonised the framework across Europe by re-defining best execution as a process to deliver the best possible result on a continuous basis. This principles-based approach effectively empowered investors and market participants with their respective abilities to evaluate, monitor, justify and decide choice of liquidity venue. Investment firms, including those mid-tier firms that traditionally connected only to their respective domestic exchange, are increasingly exploring the benefits of connecting to a pan European multilateral trading facility like Turquoise in order to deliver a better execution result for their clients and diversify their offerings by geography, as a single connection to Turquoise offers trading in shares of 17 additional countries to their home market.
Connection at the trading level is straightforward. Turquoise, along with other MTFs, has innovated also the post-trade space. Members today have a choice of four fully interoperable central counterparties: LCH.Clearnet, EuroCCP, EMCF, and SIX x-clear. Structurally, each CCP nets and facilitates delivery of the European shares for settlement into their respective country’s central securities depository. This means a member may sell on a local exchange and buy on Turquoise with a flat position, for example, at the local central securities depository. The commercial benefits of consolidating clearing through a choice of CCP serving multiple markets are economies of scale via volume discounts offered by the respective CCP. As more retail intermediaries and second tier firms look to become members and efficiently access pan European liquidity pools offered by Turquoise, the opportunity is for prospective members of Turquoise and general clearing member firms already connected to the post-trade ecosystem serving Turquoise to cooperate for incremental business and the additional pan-European choice offerings available through Turquoise.
Turquoise today allows the trading of shares on one of two complementary order books. Turquoise Integrated Lit is a traditional lit orderbok featuring Price priority and includes Hidden orders like icebergs and large-in-scale (LIS). Turquoise Midpoint Dark matches orders in shares pegged to the reference price of the primary best bid and offer (PBBO) of the respective European exchange with size priority and user-defined minimum execution size (MES) for two additional functionalities: Continuous Midpoint matching and Turquoise Uncross, the buy-side friendly randomised periodic series of intraday auctions.
Whereas the lit book gives certainty—but potentially suffers the downside of market impact— the dark pool does not provide certainty pre-trade, but has the benefit of allowing firms’ orders closer to the market without signalling any risk. The benefit of offering two types of orderbooks is that it allows Turquoise to offer complimentary liquidity. The two approaches provide better quality matching towards the benchmark that the investors are trying to meet.
Turquoise Uncross is an innovation that exists nowhere else on European markets. The trade type is a series of periodic, randomised auctions that allow two sides of an order to both be resting and then have the potential to match at a time that is determined by a randomised function. Of particular interest to buy-side firms, Turquoise has seen a significant increase in the value of executions in Turquoise Uncross, up more than three times since the start of September 2013, as more firms opt to use this functionality.
Chart analysis
For charts please refer to Asset Servicing Times issue 78, page 19
Figure 1 shows the period of growth across the different exchanges from October 2012. If you revalue all the platforms to 100 at the start date, the graph will then reflect growth over the last year, Turquoise is currently the fastest growing platform in Europe with meaningful liquidity.
Figure 2 shows daily values traded per day since January of this year. Customers are choosing to trade in Turquoise Integrated Lit and Midpoint Dark orderbooks. The observation is that participations in Turquoise are increasing, including Turquoise Midpoint Dark.
Figure 3 looks more closely at daily values traded in 2013 on Turquoise Midpoint Dark. Customer business is growing in Turquoise Uncross and Continuous Midpoint functionalities. The observation is that the trends of participations in Turquoise Midpoint Dark are increasing, and increasing particularly in Turquoise Uncross, an innovation in market structure.
Now that MTFs have achieved a meaningful threshold of liquidity in pan-European trading, firms can truly deliver best execution for their clients by accessing meaningful choice of complementary liquidity pools. Turquoise aims to make this as simple and as efficient as possible, while at the same time innovating to deliver not just the best experience, but the highest standard of result consistent with principles of integrity, innovation, partnership, and excellence. This is exemplified, for example, through Turquoise Uncross, the innovation which provides high size and best in class quality, independently verified.
NO FEE, NO RISK
100% ON RETURNS If you invest in only one asset servicing news source this year, make sure it is your free subscription to Asset Servicing Times
100% ON RETURNS If you invest in only one asset servicing news source this year, make sure it is your free subscription to Asset Servicing Times
