Securities Industry Outlook for 2008
Subprime Crisis Exposes Data Inadequacies | Finra Is Proving 'Principled' | IT Rising to Asset Servicing Challenges | Interdealer Platforms Point the Way | Turquoise Tests Known Strengths in New Arena | ATSs Gear Up for Global Fragmentation
Turquoise Tests Known Strengths in New Arena
January 7, 2008
Employing a strategy that has worked well for new alternative trading platforms in the U.S., consortium-owned Turquoise is seeking to become a quick hit in Europe, but has encountered obstacles along the way, such as a lengthy search for a CEO and at least two delays related to its technology infrastructure.
Once in operation, if U.S. alternative trading systems (ATSs) are any indication, Turquoise's nine global bank investors--Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, Merrill Lynch & Co., Morgan Stanley, UBS and, more recently, BNP Paribas and Societe Generale--should help it to build market share rapidly. And in October Turquoise tapped a high-profile chief executive--Eli Lederman, former co-head of electronic trading at Morgan Stanley--which for many market participants may have made the wait worthwhile.
Lederman said the venture's investors have committed to placing it at the top of their order-routing matrixes when the best bid and offer is tied among execution venues, and to maintaining "certain market-making obligations." He emphasized that the banks must still follow best-execution policies, but "there will be liquidity on Turquoise on day one--now anticipated in August--and that's an important part of the strategy."
Level and Bids Trading in the U.S. have used similar approaches, and in fact have many of the same backers. The ATSs have each developed sizable liquidity pools quickly--Bids began operations in April, Level in January 2006--in part because they exited the gate with investors looking to send liquidity their way when best-execution requirements permitted.
Like the U.S. venues, Turquoise will offer a competitive maker-taker fee structure and price-time execution priority, as well as investor tools such as choosing the minimum trade size. The multilateral trading facility (MTF)--Europe's version of an ATS--will add an extra twist, since the U.S. platforms are dark books and the MTF will offer both a high-performance displayed book aimed at more conventional trading, including algorithms, and dark liquidity to "discreetly trade less-liquid stocks of considerable size," Lederman said.
Turquoise's primary strength, however, may be its high-powered market makers posting aggressive bids and offers to earn maker-taker rebates. "It's a very straightforward assumption that there will be a better price on Turquoise a significant percentage of the time," said Lederman. "Because of best-execution obligations, people will have to be connected to Turquoise."
