Firstly thanks to everyone who has emailed me with such positive responses to the Fragulator. Thousands of fragulations have taken place on the site since Friday and it’s great to know that so many of you are finding it useful.
We’ve had all sorts of interesting feedback, especially in terms of the classifications we have chosen and the different levels of reporting transparency. A full guide to the different trade types can be found on the FAQ page but basically we still classify a trade as lit provided that at least one side came from a lit order book. So, for example, a dark order that interacts with a lit order is still classified as a lit trade. You can see this in the Fragulator tables which separate out dark to dark interactions at Chi-Delta or Turquoise from other trades in their lit books.
The bigger issue, though, is one of transparency and the fact that dark and other non-lit venues observe completely different levels of transparency. The activities of the big broker dark pools have especially come in for some stick in this area and I know that the primary exchanges are crying foul at the regulators over this. Basically, their view is that if you act like an exchange (i.e. by matching orders), then you should have to report like an exchange. The risk they claim is that, without a level playing field, transparency goes down and Europe potentially becomes a dealer market – neither of which were the intended consequences of MiFID. On the other hand, the brokers claim that they are providing a very necessary liquidity operation by allowing traders to interact in their dark pools in different ways. It all seems like the next chapter in a subtle power play between the big exchanges on one side and the big banks and brokers on the other.
Meanwhile, the folks at CESR are getting lobbied from all sides on what is best for the market. For more information on this you might want to look at FT Trading room which features a video interview with a certain shiny headed industry observer.
It seems certain, though, that more regulation is on the way. With this in mind it’s interesting to note the sudden outbreak of accord between the LSE and the big banks over Turquoise. Maybe it’s recognition that these participants would rather sort out their own issues than have the regulators do it for them.
The FT reported on Monday that the London Investment Banking Association had published a paper on this. The full text of the paper can be found here: