The London Stock Exchange Group’s (LSEG) Turquoise celebrated the five-year anniversary of its agreement with the Plato Partnership to rebrand its block trading and uncross services last week, a relationship which has facilitated over €1 trillion in equities traded.
The exchange operator’s agreement with Plato, which was originally signed in 2016, brought the newly rebranded Turquoise Plato to market with the aim of developing efficiencies in the European equities block trading space.
“The idea of Turquoise Plato began as we tried to solve the puzzle of how to trade large orders when the natural trend was that of shrinking trade sizes that occurred with the electronification of stock exchanges. At the time, this issue was seen from an engineering point of view as one of the most difficult in the market,” Dr Robert Barnes, CEO of Turquoise, told The TRADE.
“If you are a long-term institutional investor, the biggest challenge is to minimise market impact while achieving a quality execution price. We’ve solved the quality of execution through Turquoise Plato Uncross. By adding in conditional orders and automated reputational scoring, we have created a fully automated workflow with conditionals which has grown to become the industry leader.”
Since the signing of the agreement in 2016, Barnes confirmed that Turquoise Plato users had traded more than €1.1 trillion in single counted equities. Last year was also the first full year that electronic block trading became mainstream with more than half of Turquoise Plato’s dark pool volumes being matched via Turquoise Plato Block Discovery, Barnes added.
The platform has also seen an array of record-breaking volumes in the last few years as block trading surged in popularity including a new daily record on Turquoise Plato Block Discovery of €1.42 billion on 9 November last year. In the previous April, Barnes told The TRADE that the pandemic had led to a major shift in how traders are interacting with larger-sized trades.
“Spreads widen in times of uncertainty, and traditionally with other mechanics you may often get an OTC price that can be many basis points or even percentage points away from the touch. On 9 March and 9 November 2020 when the market was highly volatile, we found that because of the way the market model was designed at the request of the asset managers and the sell-side, Turquoise Plato was matching record volumes at the midpoint and with quality execution with significant benefit for end investors,” he said.
European regulators have continued to encourage trading volumes onto lit venues using regulatory requirements such as double volume caps (DVCs), however, Barnes stressed the importance of lit and dark markets working in tandem with one another, allowing larger transactions to reduce market impact by using dark pools.
“We would love to see more activity in the lit order books. We also realise one size doesn’t fit all, so the lit order books are highly efficient for lots of trades that tend to be small size but we also need to service those investors like pension funds and insurance companies that have much larger orders where we need to minimise market impact,” added Barnes.
“Primary stock exchanges in the UK and Europe still have the majority share of trading intraday on their lit order book activity and the closing auction. When this is complemented by services like those designed in partnership with the community and Turquoise Plato, I would argue that post MiFID II, we probably have the best quality liquidity of any region in the world on a per stock basis.”
The partnership has seen several milestones since its infancy five years ago, becoming the number one midpoint and electronic block trading dark pool for UK securities in 2017, just a year after signing, and winning The TRADE’s Leaders in Trading award for Outstanding Block Trading Venue in the same year.
Plato Partnership’s members include BlackRock, Deutsche Bank, Goldman Sachs, JP Morgan, Morgan Stanley, Barclays, Bank of America Merrill Lynch, Citi, Deutsche Asset Management, Fidelity International, Franklin Templeton, Norges Bank Investment Management, Union Investment, UBS and Axa Investment Managers.
Turquoise Plato has also continued to develop its offering as the market it sits within has evolved, launching its Turquoise Plato Trade At Last closing auction mechanism in October last year. Aimed at allowing participants to better interact with the closing auction, the new mechanism allows traders to submit firm and conditional orders for an additional ten minutes after the closing auction published the official closing price at 4.35pm.
Barnes added that the partnership had seen significant growth in its turnover of small to medium enterprise securities and that this was an area for potential growth in the future.
“We have processed tens of billions now in terms of turnover for matching AIM securities, with around half of that being done at the midpoint, giving price improvements fairly to both buyers and sellers, helping investors get business done, and making the growth markets even more attractive for those small to medium enterprises,” he said.
“Post-Brexit, the benefit is if you’re buying a Euronext Growth stock on Turquoise Europe and you’re selling it on Euronext Growth MTF, you just have one net settlement message instead of two because Turquoise Europe offers 100% clearing of these stocks via LCH SA, the same CCP that clears Euronext Growth MTF. We’re effectively saving half the settlement cost for those investors that are trading on those platforms, and we think that is a signpost of how we could move forward for the blue chips and mid to small caps.”