France-based equity agency-only brokerage CA Cheuvreux is in the process of launching an internal crossing network to match retail, institutional, algorithmic, program and direct-market-access flow coming into the firm, with a focus on European equities. Because the firm has a broad reach across Europe, Ian Peacock, CA Cheuvreux's chief executive officer for North America, believes the matching rates in the internal network will be high.
The network, called BLINK, is being rolled out in phases. The internal matching engine was introduced internally this month and allows CA Cheuvreux traders to route client orders through BLINK to find a match.
While CA Cheuvreux customers have a choice as to whether they want their orders to match with internal flow, Peacock sees no reason why they would choose not to: Since the broker-dealer is an agency broker, clients would not be crossing with any proprietary orders, he explains.
In addition, clients will save on commission fees if orders are successfully matched internally, according to Peacock, who notes that exchange fees in Europe are particularly high. For orders that are crossed internally, CA Cheuvreux will not be charged the exchange fees and the brokerage will pass those savings on to its clients in the form of lower commissions, he says.
Nor will clients executing in BLINK will miss out on the public markets, Peacock asserts, explaining that orders will be routed simultaneously to BLINK and to the public market. If there are any double fills, CA Cheuvreux will take on the responsibility of the duplicate fill, Peacock says. He adds, "As soon as the order is matched internally, it will be pulled from the public market." However, he continues, the firm is confident that trades will match in BLINK and that the chance of a duplicate order is very small because of Cheuvreux’s market share. The brokerage expects that its extensive business in European equities will equate to great liquidity in the crossing network.
The second phase of BLINK, which will go live next month, will allow clients to execute their orders in BLINK from their desktops, essentially creating a European dark crossing network.
BLINK was developed internally over the past year by tapping into Cheuvreux's 200-person technology staff. Peacock notes that the firm’s execution and order management systems, which are a mix of internally developed and off-the-shelf products, will connect to BLINK.
“European execution fees are much higher than in the U.S., so if people can reduce those fees, they will do it. If we can cross it and print it for them, they will save money," says Peacock, adding that the reaction to the new execution tool has been positive.
Just as the trend in the U.S. has been for the major broker-dealers to create internal crossing engines, this may now be seen in Europe as well. “However, 55 percent of the flow in Europe is concentrated among 10 firms [of which CA Cheuvreux is one] so there are not that many firms that can achieve a high matching rate,” Peacock says.
Although electronic platforms such as Chi-X have garnered a surprising 18 percent of volume in Europe, most of the other platforms have not fared as well as of yet, notes Peacock. He explains that in Europe low-touch trading represents only about 25 percent of orders, whereas in the U.S. that figure is closer to 75 percent.
“The [European] market is just not as sophisticated when it comes to electronic trading,” he says. However, Peacock expects those numbers to change drastically over the next two to three years, and he predicts that more than 50 percent of trading eventually will be done electronically.