Nasdaq OMX, the transatlantic exchange operator, will next week launch a hybrid “dark pool” for cash equity markets in the Nordic region as the industry continues to explore ways to exploit the controversial venues in spite of regulators’ warnings of a potential clampdown.
Called Nordic@Mid, it will allow investors from Monday to trade cash equities in Stockholm, Copenhagen, Helsinki and Iceland on the exchanges in a hybrid of an exchange and a dark pool.
Dark pools are a type of block trading platform where large institutions such as asset managers can place large orders in the hope of finding a match. Trades are matched in private and prices only revealed once the trade has been completed.
Institutions have sought them out for large orders as sophisticated computer-generated algorithms chop orders on exchanges into smaller sizes, meaning large blocks cannot be matched easily. The hybrid is anther way exchanges with publicly-available prices are trying to attract volumes of large trades back to their venues that have increasingly going to standard dark pools operated by competitors of the exchanges.
The new Nordic hybrid is similar in concept to one launched last month by Nasdaq OMX in the US, known as Nasdaq PSX, and to Xetra’s Midpoint Match platform. TMX Group of Canada also plans a similar platform. On Thursday the BMV exchange in Mexico unveiled similar plans.
Dark pools are seen by many in the industry as the modern electronic equivalent of the old telephone-brokered markets but regulators have threatened to curb their activities amid questions over transparency. They have questioned whether too much pricing of shares takes place away from standard, or “lit”, markets like exchanges.
Nasdaq OMX said the platform would be classified like a regulated market under the Markets in Financial Instruments Directive (Mifid), meaning it is required to publish the trades done on it and the price.
The launch by Nasdaq OMX will be the second dark pool to be launched in Europe in six days, following UBS with its own dark pool, UBS MTF, on Tuesday.
“With Nordic@Mid, institutional investors are now able to execute large block trades efficiently and market neutrally on Nasdaq OMX Nordic exchanges, which are by far the biggest Nordic liquidity pool,“ said Hans-Ole Jochumsen, president of Nasdaq OMX Nordic.
Last year Nomura said it would reveal publicly what trades had been done in an effort to “remove the mystery” from the increasingly controversial trading facilities.
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