Credit Suisse is preparing to launch a new tool that will give institutional clients a more detailed picture of their interactions with dark pools, including with the firm's own Crossfinder broker crossing network.
Advanced Execution Services (AES) Alpha Scorecard will categorise each client trade that takes place in a dark pool, based on the short-term performance of a stock after an execution. Clients that consistently profit in the short-term will be classified as opportunistic, while those whose strategies are not dependent on near-term price movements will be considered contributors. Customers that do not exhibit a strong preference either way will be classed as neutral.
After receiving metrics on their own trading activity in dark pools, clients will be able to decide which of the three types of participant they wish to interact with in Crossfinder. For external dark pools, Scorecard recipients will be able to use the analysis of their flow using the same methodology to evaluate particular venues and decide whether or not to continue routing flow to them.
Scorecards will be presented to European clients at the end of this month, with US and Asian clients joining within the following month.
“The whole impetus behind this initiative is to provide some transparency around parts of the market that clients may consider as being unknown.
Topics like high-frequency trading, dark pools and gaming are all relatively opaque in nature,” Rob Maher, head of sales for Credit Suisse's AES division told theTRADEnews.com. “There is a lot of interest – partially driven by fear – among institutions to have more transparency about the flow they are interacting with.”
He added that AES Alpha Scorecard is part of “an overall effort by Credit Suisse to remain focused on protecting client orders as best we can.”
Maher says that around 80% of Crossfinder clients are neutral, 15% are contributors and the remaining 5% are opportunistic.
According to a monthly analysis by US boutique brokerage Rosenblatt Securities, Crossfinder was the largest non-displayed European trading market in January, trading an average of €357.5 million per day, or 0.7% of total liquidity.
The same segmentation of order flow used by AES Alpha Scorecard will be used for Light Pool, Credit Suisse's US electronic communications network (ECN) that is preparing for a soft launch next month. The ECN will set execution prices based on participant behaviour, with contributors receiving a rebate for posting liquidity and opportunistic traders having to pay a higher rate. Certain order types that can be used to detect other orders will not be permitted in Light Pool and post-trade data will not be available on the high-speed data feeds offered by most US exchanges.
Furthermore, at the beginning of this year, the firm rolled out Gamefinder, its US surveillance tool, for European clients. Gamefinder is a post-trade tool used by Credit Suisse's trading desk to look for potential incidents of gaming on a T+1 basis.