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Pipeline to Bring Block Trading Competition to Europe

Pipeline has announced it will take its Block Board and Algorithm Switching Engine offerings abroad.

Pipeline has announced it will take its Block Board and Algorithm Switching Engine offerings abroad.

The firm expects to launch its pan-European trading efforts in the second quarter of this year. “In Europe they are having enormous difficulty getting large orders done, particularly in the current economic climate,” says Marcus Hooper, Executive Director for Pipeline Financial Group Limited.

“Asset management traders are increasingly running out of options of where to trade large positions and investment banks are uninterested in applying their own risk capital so suppliers are starting to close things down,” he adds.

Hooper points out that in Europe there are many MTFs still entering the market but most are built for the high-frequency trader with small order books. “We’re focused on getting those large executions done,” he says.

The soft launch for the European trading offering will begin in April or early May according to Hooper, with ten or fewer clients initially trading. The full launch is expected to take place during the mid to late May timeframe.

Users will be able to access liquidity from 14 European markets and more than 6,000 stocks, including the main European indices and a range of ETFs and GDRs. Countries covered in the initial launch will include: the UK, France, Netherlands, Portugal, Sweden, Spain, Germany, Switzerland, Ireland, Norway, Finland, Denmark, Belgium and Italy.

Although the trading offerings will generally be the same as the U.S. counterparts, Hooper says there will be some customization to the European market. “Under the MiFID rules we had to make sure everything was compliant and there was a lot of cross checking of underlying instruments,” he notes.

Hooper would not yet detail the clearing and settlement arrangements for the European offerings. “It requires a bit of innovation, especially because Pipeline intends to serve a mixture of buy and sell side customers,” he says. “We want to make sure we can support our products in the most appropriate manner.”

Sang Lee, co-founder and managing partner at Aite Group, explains that while it is a difficult environment to move into new markets, there is room for more competition particularly in the block trading area in Europe. “People are willing to pay a certain premium to get blocks done,” he says.

Lee adds, “The European markets is the so-called next frontier and while I’m surprised to see new players enter the U.S. market on and off most of the firms are focused on the European side.”

Algorithmic trading is driving more and more business to European MTFs, says Lee, and the trend overall is very similar to what the U.S. saw with declining average trade sizes in the displayed markets. “It gets so tough to do basic block trading in the displayed market without attracting attention and people ruining your overall strategy,” says Lee. “The it makes a compelling business case for the block trading system.”

Liquidnet, which has been in Europe for a time now, is still really the only other player in the block trading market there, says Lee. “They’re pretty much the only game in town so I do think competition is not a bad thing and clients probably prefer the competition,” he notes.

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