UBS Investment Bank intends to launch a dark-liquidity multilateral trading facility (MTF) for crossing orders in European stocks, pending regulatory approval from the UK’s Financial Services Authority.
UBS said the new MTF would be “100%” dark, with no pre-trade signalling risk or display of any kind. The MTF will report executions post-trade in real time to Markit BOAT and will offer mid-point matching based on the price of the primary market. The venue will use a central counterparty (CCP) model to mitigate counterparty risk but UBS has not yet announced a clearing partner.
As an “external non-discretionary” pool, UBS MTF will complement the broker’s existing internal discretionary crossing service, UBS Price Improvement Network (UBS PIN).
“We use PIN for discretionary client flow only,” Tim Wildenberg, UBS’s head of direct execution services, EMEA, told theTRADEnews.com. “By launching a separate MTF, we hope to attract flow from market participants who are not our clients or who don’t want us to have discretion over their orders.”
Wildenberg added that using an external CCP would allow UBS to open its MTF to a wider audience than if the bank assumed the counterparty risk itself. As a result, the MTF will not need to restrict the type of order flow it admits by charging high transaction costs.
“Our plan is to launch with one of the big name CCPs, but we hope to be able to offer interoperability soon,” he said. “We will not discriminate on the type of members that will have access to the MTF.”
Wildenberg also said UBS would treat its own MTF the same as any other external liquidity venue and would only cross client orders there if its smart order router finds it contains adequate liquidity.
UBS MTF will be managed and supervised separately from the firm’s other execution businesses and internal trading desks.
Dr. Robert Barnes, head of market structures at UBS, said in a statement, “As we developed the architecture and interactivity model for UBS MTF, we were committed to greater simplicity, lower transaction costs and reduced market impact. We aim to leverage our broad and deep market experience to help us to bring innovation, quality liquidity and a unique value proposition to our clients.”
UBS is the second investment bank to launch its own MTF. Japan-based Nomura reclassified the European incarnation of its NX dark pool as an MTF in late January for commercial reasons. According to figures from data vendor Thomson Reuters, NX Europe traded €1.5 billion in February, its first full month of operation, making it the fourth-largest European dark MTF.
Broker dark pools have come under fire, particularly from trade body the Federation of European Securities Exchanges, which complained about their relative lack of regulation compared with exchanges and MTFs.