DOCSLIB.ORG

Dark Pool Questions? Bids Trading Gives You Answers!

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text
Dark Pool Questions? Bids Trading Gives You Answers! DARK POOL QUESTIONS? BIDS TRADING GIVES YOU ANSWERS! The number of dark pools continues to grow and according to a recent Greenwich Associates* survey, many institutional investors do not have a clear understanding of what differentiates each pool. Greenwich Associates published 10 key questions that an institution should ask when evaluating a dark pool. To make your dark pool selection easier, BIDS Trading has provided answers to these questions. 1. Is your pool a true dark pool, (i.e., completely anonymous, without any information leakage) or will information regarding my orders be conveyed to potential liquidity providers? The BIDS Trading ATS is a true dark pool. BIDS Trading provides the institutional community with a place that they can safely and effi ciently trade blocks. BIDS Trading does not have liquidity partners and does not send or receive IOIs. 2. Does your platform route orders out of your dark pool or from any other system connected to your dark pool, including your smart order router, to ECNs, ATSs or any other external source? Except for satisfying Reg NMS requirements, the BIDS ATS does not route orders. 3. If you allow indications of interest (IOIs), is it an opt-in or an opt-out process or will this decision be made for me? The BIDS ATS does not use IOIs; orders are not exposed to other destinations. Our solution to fragmenta- tion is the Conditional order. A conditional order is similar to an IOI, but with accountability. Conditional orders allow traders to search for liquidity in multiple venues by representing their orders in our market as conditional. If volume becomes available, the trader will be invited to fi rm up (i.e., commit their order to the BIDS ATS). Since conditional orders allow for some pre-trade information to be dis- closed, the BIDS ATS keeps track of how often a trader fi rms up when they are presented with a liquidity opportunity. BIDS ATS users can then fi lter out counterparties that have a low score (based on how they responded to previous invitations) or can even choose to completely opt out of conditional fl ow. 4. What information regarding my order will be included in an IOI (symbol, side, size, and/or price)? We do not send out IOIs and we do not accept IOIs. 5. What type of order fl ow populates your dark pool (i.e., proprietary orders, retail orders?) The BIDS ATS is open to all order types, including broad-based institutional, algorithmic, single-stock and program business – from both the buy side and the sell side. BIDS Trading does not engage in pro- prietary trading. 6. How do you count matched volume (single or double count) in your dark pool for purposes of what is reported to the tape and advertised, and are orders that are routed out of your dark pool and executed 111 BROADWAY, SUITE 1603, NEW YORK, NY 10006 :: 212.618.2060 :: 877.566.2437 :: BIDSTRADING.COM by another party counted toward your own volume? Volume is double-counted to include all volume traded on the BIDS ATS (i.e., both sides of the transac- tion). However, when we report our volumes to a TRF, they are single-counted. We also broadcast our single- counted, top-traded names (post-trade) on Bloomberg. 7. Do you match within the spread or at the spread? The BIDS ATS supports both auto-matching and negotiations as methods for trading. The default setting for auto-match is at or within the NBBO. The BIDS ATS will attempt to improve both parties to the mid- point when possible. Negotiating allows traders to interact with orders when no auto-match is available. A negotiation may be completed outside the NBBO. 8. What anti-gaming controls are in place? The BIDS ATS provides the following anti-gaming tools: Behavioral Profi ling – BIDS Trading ScorecardsSM and BIDS Trading FiltersSM give traders additional con- trol over their trades, letting them decide to whom they want to disclose information. Scorecards identify potential counterparties based on their past trading behavior in key areas. While traders never see their counterparty’s scores, they can fi lter out traders with certain undesirable behavior. Minimum Block Size – Each trader determines their minimum trade size, on an order-by-order basis or a default percentage on all orders. No counterparty with a size less than the specifi ed minimum will inter- act with the order. Price Discretion – Traders can set price discretion so that the BIDS ATS will invite an order that does not cross, but is within the trader’s price discretion, to negotiate. Since this is a situation in which in- formation will be disclosed, the BIDS ATS ensures that the disclosure is desirable to both parties – each trader’s scorecard is compared to the fi lter of the other trader before any information is revealed. 9. Do you have a minimum size limit? The BIDS ATS does not set volume minimums. Each trader determined the size of a block, on an order- by-order basis or a default percentage on all orders. No counterparty with a size less than the specifi ed minimum will interact with the order. 10. How will my orders interact with your proprietary orders in terms of priority BIDS Trading is an ATS and does not engage in proprietary trading. However, our pool is open to all order fl ow from our users. The BIDS ATS executes in price/volume/time or volume/price/time priority at the user’s discretion, which can be pre-empted by minimum size designations and the use of fi lters. *Greenwich Associates interviewed 64 equity investors at hedge funds, invest- ment managers, mutual funds and pension funds in the United States, Europe and Canada. Interviews were conducted on the internet in the last week of June and the fi rst week of July, 2008. 111 BROADWAY, SUITE 1603, NEW YORK, NY 10006 :: 212.618.2060 :: 877.566.2437 :: BIDSTRADING.COM.
Load more

Recommended publications
  • Impact on Financial Markets of Dark Pools, Large Investor, and HFT
    Impact on Financial Markets of Dark Pools, Large Investor, and HFT Shin Nishioka1, Kiyoshi Izumi1, Wataru Matsumoto2, Takashi Shimada1, Hiroki Sakaji1, and Hiroyasu Matushima1 1 Graduate School of Engineering, The University of Tokyo, 7-3-1 Hongo, Bunkyo, Tokyo, Japan 2 Nomura Securities Co., Ltd.? [email protected] Abstract. In this research, we expanded an artificial market model in- cluding the lit market, the dark pools, the large investor, and the market maker (HFT). Using the model, we investigated their influences on the market efficiency and liquidity. We found that dark pools may improve the market efficiency if their usage rate were under some threshold. Es- pecially, It is desirable that the main users of the dark pool are large investors. A certain kind of HFT such as the market making strategy may provide the market liquidity if their usage rate were under some threshold. Keywords: Artificial Market · Dark pool · Large investor. 1 Introduction Dark pools, private financial forums for trading securities, are becoming widely used in finance especially by institutional investors [15]. Dark pools allow in- vestors to trade without showing their orders to anyone else. One of the main advantages of dark pools is their function to significantly reduce the market impact of large orders. Large investors have to constantly struggle with the problem that the market price moves adversely when they buy or sell large blocks of securities. Such market impacts are considered as trading costs for large investors. Hiding the information of large orders in dark pools may decrease market impacts. Moreover, from the viewpoint of a whole market, dark pools may stabilize financial markets by reducing market impacts[7].
    [Show full text]
  • A Pecking Order of Trading Venues
    Journal of Financial Economics 124 (2017) 503–534 Contents lists available at ScienceDirect Journal of Financial Economics journal homepage: www.elsevier.com/locate/jfec R Shades of darkness: A pecking order of trading venues ∗ Albert J. Menkveld a, Bart Zhou Yueshen b, Haoxiang Zhu c, a Vrije Universiteit Amsterdam and Tinbergen Institute, De Boelelaan 1105, Amsterdam 1081 HV, Netherlands b INSEAD, Boulevard de Constance, 77300 Fontainebleau, France c MIT Sloan School of Management and NBER, 100 Main Street E62-623, Cambridge, MA 02142, USA a r t i c l e i n f o a b s t r a c t Article history: We characterize the dynamic fragmentation of U.S. equity markets using a unique data Received 16 September 2015 set that disaggregates dark transactions by venue types. The “pecking order” hypothesis Revised 13 June 2016 of trading venues states that investors “sort” various venue types, putting low-cost-low- Accepted 22 June 2016 immediacy venues on top and high-cost-high-immediacy venues at the bottom. Hence, Available online 8 March 2017 midpoint dark pools on top, non-midpoint dark pools in the middle, and lit markets at the JEL classification: bottom. As predicted, following VIX shocks, macroeconomic news, and firms’ earnings sur- G12 prises, changes in venue market shares become progressively more positive (or less nega- G14 tive) down the pecking order. We further document heterogeneity across dark venue types G18 and stock size groups. D47 Published by Elsevier B.V. Keywords: Dark pool Pecking order Fragmentation 1. Introduction R For helpful comments and suggestions, we thank Bill Schwert (ed- A salient trend in global equity markets over the last itor), an anonymous referee, Mark van Achter, Jim Angel, Matthijs decade is the rapid expansion of off-exchange, or “dark” Breugem, Adrian Buss, Sabrina Buti, Hui Chen, Jean-Edourd Colliard, Ca- role Comerton-Forde, John Core, Bernard Dumas, Thierry Foucault, Frank trading venues.
    [Show full text]
  • Dark Pools and High Frequency Trading for Dummies
    Dark Pools & High Frequency Trading by Jay Vaananen Dark Pools & High Frequency Trading For Dummies® Published by: John Wiley & Sons, Ltd., The Atrium, Southern Gate, Chichester, www.wiley.com This edition first published 2015 © 2015 John Wiley & Sons, Ltd, Chichester, West Sussex. Registered office John Wiley & Sons Ltd, The Atrium, Southern Gate, Chichester, West Sussex, PO19 8SQ, United Kingdom For details of our global editorial offices, for customer services and for information about how to apply for permission to reuse the copyright material in this book please see our website at www.wiley.com. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or trans- mitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, except as permitted by the UK Copyright, Designs and Patents Act 1988, without the prior permission of the publisher. Wiley publishes in a variety of print and electronic formats and by print-on-demand. Some material included with standard print versions of this book may not be included in e-books or in print-on-demand. If this book refers to media such as a CD or DVD that is not included in the version you purchased, you may download this material at http://booksupport.wiley.com. For more information about Wiley products, visit www.wiley.com. Designations used by companies to distinguish their products are often claimed as trademarks. All brand names and product names used in this book are trade names, service marks, trademarks or registered trademarks of their respective owners. The publisher is not associated with any product or vendor men- tioned in this book.
    [Show full text]
  • Informational Inequality: How High Frequency Traders Use Premier Access to Information to Prey on Institutional Investors
    INFORMATIONAL INEQUALITY: HOW HIGH FREQUENCY TRADERS USE PREMIER ACCESS TO INFORMATION TO PREY ON INSTITUTIONAL INVESTORS † JACOB ADRIAN ABSTRACT In recent months, Wall Street has been whipped into a frenzy following the March 31st release of Michael Lewis’ book “Flash Boys.” In the book, Lewis characterizes the stock market as being rigged, which has institutional investors and outside observers alike demanding some sort of SEC action. The vast majority of this criticism is aimed at high-frequency traders, who use complex computer algorithms to execute trades several times faster than the blink of an eye. One of the many complaints against high-frequency traders is over parasitic trading practices, such as front-running. Front-running, in the era of high-frequency trading, is best defined as using the knowledge of a large impending trade to take a favorable position in the market before that trade is executed. Put simply, these traders are able to jump in front of a trade before it can be completed. This Note explains how high-frequency traders are able to front- run trades using superior access to information, and examines several proposed SEC responses. INTRODUCTION If asked to envision what trading looks like on the New York Stock Exchange, most people who do not follow the U.S. securities market would likely picture a bunch of brokers standing around on the trading floor, yelling and waving pieces of paper in the air. Ten years ago they would have been absolutely right, but the stock market has undergone radical changes in the last decade. It has shifted from one dominated by manual trading at a physical location to a vast network of interconnected and automated trading systems.1 Technological advances that simplified how orders are generated, routed, and executed have fostered the changes in market † J.D.
    [Show full text]
  • The Bright Sides of Dark Liquidity
    The Bright sides of Dark Liquidity YUXIN SUN1, GBENGA IBIKUNLE*2, DAVIDE MARE3 This Version: June 2018 Abstract Modern financial markets have experienced fragmentation in lit (displayed) order books as well as an increase in the use of dark (non-displayed) liquidity. Recent dark pool proliferation has raised regulatory and academic concerns about market quality implication. We empirically study the liquidity commonalities in lit and dark venues. We find that compared with lit venues, dark venues proportionally contribute more liquidity to the aggregate market. This is because dark pools facilitate trades that otherwise might not easily have occurred in lit venues when the limit order queue builds up. We also find that the spread of the trades subsquent to dark trades tends to be narrow. This is consistent with the order flow competition between venues in that dark trade might give market makers a signal of uninformed liquidity demand to narrow the spread. Based on the recent dark volume cap regulation under MiFID II, we provide causal evidence that dark trading cap brings a negative impact on transaction cost. JEL classification: G10, G14, G15 Keywords: Dark pools, dark trading, MiFID, Multilateral Trading Facilities (MTFs), Liquidity commonality, trading liquidity, Double Volume Cap (DVC), regulation We thank Carol Alexander, Carlo Gresse, Thomas Martha, Sean Foley, Petko Kalev, Tom Steffen, Khaladdin Rzayev, Satchit Sagade, Monika Trepp, Elvira Sojli, Micheal Brolley and Lars Norden for helpful comments and discussions. We are also grateful to the participants at the 2nd Dauphine Microstructure Workshop, the 1st SAFE Market Microstructure Conference, the 1st European Capital Markets Workshop and the 2018 EFMA conference.
    [Show full text]
  • Learning Unfair Trading: a Market Manipulation Analysis from the Reinforcement Learning Perspective
    Learning Unfair Trading: a Market Manipulation Analysis From the Reinforcement Learning Perspective Enrique Mart´ınez-Miranda and Peter McBurney and Matthew J. Howard Department of Informatics King’s College London fenrique.martinez miranda,peter.mcburney,[email protected] Abstract have names like ramping, wash trading, quote stuffing, lay- ering, spoofing, among others. Spoofing is one of the most Market manipulation is a strategy used by traders to popular strategies that uses non-bona fide orders to improve alter the price of financial securities. One type of ma- nipulation is based on the process of buying or selling the price and is considered illegal by market regulators (Ak- assets by using several trading strategies, among them tas 2013). A similar strategy used by high-frequency traders spoofing is a popular strategy and is considered illegal (HFTs) is called pinging where HFTs place orders without by market regulators. Some promising tools have been the intention of execution, but to find liquidity not displayed developed to detect manipulation, but cases can still be in the order book (where all buy and sell orders are listed found in the markets. In this paper we model spoofing in double auction markets), and has caused controversy as it and pinging trading, two strategies that differ in the le- can be viewed as a manipulative strategy (Scopino 2015). gal background but share the same elemental concept of Studies found in the literature that analyse the problem market manipulation. We use a reinforcement learning of market manipulation have mainly focused on the devel- framework within the full and partial observability of Markov decision processes and analyse the underlying opment of methods for detection.
    [Show full text]
  • Financial Instruments Execution Venues1
    Financial instruments execution venues1 Transactions in shares Execution venues Aequitas Lit Book Aequitas NEO Book American Stock Exchange AQUA Aquis Exchange ASX - Center Point Athens Stock Exchange Australian Stock Exchange BAML Instinct X (MLXN) Barclays LX Bats Bats Lis Bats Periodic Auction Order BIDS Trading BNP BIX BNY Millennium BofAML MLXN Bolsa de Madrid Book (auction) Borsa Italiana Budapest Stock Exchange BXE Dark (Bats Europe) Nomura NX BXE Lit (Bats Europe) Canadian Securities Exchange Chi-X Chi-X Australia Chi-X Dark Chi-X Japan CITI CROSS Citibank CitiMatch TORA CLSA Dark Pool CODA Markets Commonwealth Bank of Australia Credit Suisse Cross Finder Crosspoint CS CrossFinder CS Light Pool CXE Lit (Bats Europe) DB SuperX ATS Deutsche Bank SuperX Deutsche Börse, Xetra Equiduct Euronext Amsterdam Euronext Brussels 1 Euronext Lisbon Euronext Paris GS Sigma X GS Sigma X MTF Hong Kong Exchanges and Clearing IEX Instinet BlockMatch Instinet BLX Australia Instinet Canada Cross (ICX) Instinet CBX Hong Kong Instinet Crossing Instinet Hong Kong VWAP Cross Instinet Nighthawk VWAP Irish Stock Exchange ITG Posit Johannesburg Stock Exchange JP Morgan Cross JPM - X KCG MatchIt LeveL ATS Liquidnet Canada Liquidnet Europe Liquidnet H2O London Stock Exchange Macquarie XEN Match Now Moscow Exchange Morgan Stanley MSPool MS Pool NASDAQ NASDAQ Auction on Demand (auction) Nasdaq CX2 Nasdaq CXC Nasdaq OMX Copenhagen Nasdaq OMX Helsinki Nasdaq OMX Stockholm New York Stock Exchange Arca Nordic@Mid Omega - Lynx ATS Omega ATS Oslo Bors OTC Bulletin
    [Show full text]
  • The Design of Equity Trading Markets in Europe
    The design of equity trading markets in Europe An economic analysis of price formation and market data services Prepared for Federation of European Securities Exchanges March 2019 www.oxera.com The design of equity trading markets in Europe Oxera Oxera Consulting LLP is a limited liability partnership registered in England no. OC392464, registered office: Park Central, 40/41 Park End Street, Oxford OX1 1JD, UK; in Belgium, no. 0651 990 151, registered office: Avenue Louise 81, 1050 Brussels, Belgium; and in Italy, REA no. RM - 1530473, registered office: Via delle Quattro Fontane 15, 00184 Rome, Italy. Oxera Consulting GmbH is registered in Germany, no. HRB 148781 B (Local Court of Charlottenburg), registered office: Rahel-Hirsch- Straße 10, Berlin 10557, Germany. Oxera Consulting (Netherlands) LLP is registered in Amsterdam, KvK no. 72446218, registered office: Strawinskylaan 3051, 1077 ZX Amsterdam, The Netherlands. Although every effort has been made to ensure the accuracy of the material and the integrity of the analysis presented herein, Oxera accepts no liability for any actions taken on the basis of its contents. No Oxera entity is either authorised or regulated by the Financial Conduct Authority or the Prudential Regulation Authority within the UK or any other financial authority applicable in other countries. Anyone considering a specific investment should consult their own broker or other investment adviser. Oxera accepts no liability for any specific investment decision, which must be at the investor’s own risk. © Oxera 2019. All rights reserved. Except for the quotation of short passages for the purposes of criticism or review, no part may be used or reproduced without permission.
    [Show full text]
  • Using the Market to Manage Proprietary Algorithmic Trading HOLLY A
    Source: Hester Peirce and Benjamin Klutsey, eds., Reframing Financial Regulation: Enhancing Stability and Protecting Consumers. Arlington, VA: Mercatus Center at George Mason University, 2016. CHAPTER 10 Using the Market to Manage Proprietary Algorithmic Trading HOLLY A. BELL University of Alaska Anchorage ven before Michael Lewis1 published his popu lar and controver- sial2 book on high- frequency trading (HFT), traditional traders and regulators wer e asking what they should do about this new evolution Ein financial market trading technology in which traders use algorithms— computerized trading programs—to automatically trade securities in finan- cial markets. But what exactly about high- frequency trading do traders and regulators wish to see controlled, and can th ese issues be regulated away? Or are there better, more market- based solutions to address the issues associated with evolving market technology? The intent of this chapter is to broadly discuss categories of concerns about algorithmic and, more specifically, proprietary algorithmic trading based on issues regulators and legislators themselves have given as rationale for market intervention, but not to explore in detail every pos si ble issue that might be raised. The chapter defines algorithmic and proprietary trading and describes how the technology and regulatory environments have gotten us to to day’s financial market structure. I pres ent some of the broad concerns algorithmic trading technologies have created for regulators, legislators, the public, and other stakeholders,
    [Show full text]
  • Dark Pools, HFT and Competition
    Dark pools, HFT and competition A speech by Shane Tregillis, Commissioner, Australian Securities and Investments Commission Stockbrokers Association of Australia Conference 2011, Hilton Sydney 26 May 2011 Dark pools, HFT and competition This year's annual stockbroker's conference is occurring at a watershed for the Australian equity markets with a competitor for ASX due to commence before the end of 2011. Dynamic markets Our futures and equity trading markets have always been dynamic. However, on a periodic basis, changes occur that reshape more fundamentally the landscape. In the 1980s we saw the merger of the state based exchanges into the national stock exchange. In the 1990s there were a series of major market structure changes including: the shift to fully electronic trading and consequential closure of the trading floors; the creation of an electronic share register (the CHESS system); demutualisation of the ASX; the creation by the SFE of its own local clearing house; and closure of the futures trading floor. And then in this decade we saw the merger of the futures and equity exchanges and significant changes to market dynamics arising from automated order processing. All of these changes were challenging for market participants—and some did better than others in taking advantage of the new opportunities whereas others struggled to adjust their business models to the new environment. The introduction of competition between equities exchanges in Australia is another such game changer. I suspect we are just at the beginning in fully understanding the way in which competition, driven by technology and the increasing global nature of the markets, will impact the market and market participants in coming years.
    [Show full text]
  • Dark Trading at the Midpoint: Does SEC Enforcement Policy Encourage Stale Quote Arbitrage?
    Dark Trading at the Midpoint: Does SEC Enforcement Policy Encourage Stale Quote Arbitrage? Robert P. Bartlett, III1 Justin McCrary University of California, Berkeley University of California, Berkeley, NBER Abstract: Prevailing research posits that liquidity providers bypass queue lines on exchanges by offering liquidity in dark venues with de minimis sub-penny price improvement, thus exploiting an exception to the penny quote rule. We show that (a) the SEC enforces the quote rule to prevent sub-penny queue-jumping in dark pools unless trades are “pegged” to the NBBO midpoint and (b) the documented increase in dark trading due to investor queue-jumping stems from increased midpoint trading. Although encouraging pegged orders can subject traders to stale quote arbitrage, we show it could have affected no more than 5% of our sample midpoint trades. Draft Date: October 26, 2016 JEL codes: G10, G15, G18, G23, G28, K22 Keywords: latency arbitrage, high-frequency trading; dark pools; tick sizes; market structure Statement of Financial Disclosure and Conflict of Interest: Neither author has any financial interest or affiliation (including research funding) with any commercial organization that has a financial interest in the findings of this paper. The authors are grateful to the University of California, Berkeley School of Law, for providing general faculty research support. 1 [email protected], 890 Simon Hall, UC Berkeley, Berkeley CA 94720. Tel: 510-542-6646. Dark Trading at the Midpoint: Does SEC Enforcement Policy Encourage Stale Quote Arbitrage? Abstract: Prevailing research posits that liquidity providers bypass queue lines on exchanges by offering liquidity in dark venues with de minimis sub-penny price improvement, thus exploiting an exception to the penny quote rule.
    [Show full text]
  • Regulation of NMS Stock Alternative Trading Systems
    Response to SEC Questions Regarding ‘Regulation of NMS Stock Alternative Trading Systems’ File Number S7-23-15 The SEC, along with most of the industry and academia agree that Alternative Trading Systems (“ATSs”) must become more transparent and provide clear disclosure for the benefit of investors.1 The same data produced by exchanges should also be provided by ATSs, including transactional short sale data. Increased transparency into the structure and operations of ATSs would allow regulators to be more efficient, advisors to make more informed decisions on behalf of clients and investors to measure the benefits and disadvantages of each trading venue. We support the SEC’s proposal to significantly increase ATS disclosure requirements in light of the current market structure that has drastically changed since Regulation ATS was adopted in 1998. There are many potential conflicts of interest for dark pools that constitute the majority of ATS trading arising from their relationships with their affiliates (broker-dealers, clearing firms, other trading venues, etc.). In order to protect investors and the integrity of the U.S. markets, these conflicts of interest should be clearly disclosed. However, it is important not to become buried by the technicalities of disclosure, but holistically consider the risks that could be ultimately posed to the financial system structure. The below issues raise questions regarding the value and relevance of ATSs to investors and the markets and whether they should still continue operations. ATSs are a significant portion of volume in the marketplace. At times, up to 20% of trade volume is executed through ATSs in important U.S.
    [Show full text]