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The dark pool business owned by Nyfix, recently acquired by NYSE Euronext, was on Monday set to be divided up as the US-based business was snapped up by BNY ConvergEx and the European unit was set to be absorbed into SmartPool, NYSE Euronext’s European dark pool.
In August, NYSE Euronext agreed to pay acquire publicly listed Nyfix in a deal that valued the technology company at $144m and at a 95 per cent premium to its then stock price.
Nyfix’s software allows asset managers and hedge funds to communicate trading intentions to their brokers and banks using the FIX network. The deal gave NYSE Euronext relationships with so-called buy-side managers that allow it to sell other services to them.
But Nyfix also operates dark pools – which allow the trading of large block of shares with pre-trade price anonymity – on both sides of the Atlantic. NYSE Euronext made clear at the time it would ”explore various alternatives” for Nyfix’s dark pool businesses.
Nyfix’s US dark pool is run by the company’s transaction services business, which BNY ConvergEx, a privately-held trading technology company and operator of dark pools, said it had agreed to buy for an undisclosed sum.
The business includes Nyfix’s US electronic agency brokerage business, itself made up of the Millennium dark pool, its “direct market access” (DMA) and algorithmic trading products.
Separately, people familiar with the matter said NYSE Euronext planned, subject to regulatory approval, to absorb Nyfix’s Euro-Millennium European dark pool into SmartPool, the exchange’s European dark pool launched in February in joint venture with HSBC, JP Morgan and BNP Paribas.
On Tuesday, SmartPool will announce that it has signed up BofA Merrill Lynch and brokerage CA Cheuvreux as its latest members, bringing the total membership to 16. Another four are set to follow within weeks, the people said.
Once the deal with ConvergEx is completed, Millennium will operate alongside the company’s existing VortEx and ConvergEx Cross dark pools.
Dark pools have come under scrutiny by the Securities and Exchange Commission, amid questions over their transparency.
Carey Pack, chief executive of ConvergEx Execution Solutions, said the company “believed in the many benefits of non-displayed liquidity [dark pools] for all market participants” and supported “efforts being taken to promote more transparency in this rapidly evolving and important space”.
He said dark pools improved “overall execution quality by reducing information leakage, market impact and execution expenses”.
The acquisition of Millennium gave ConvergEx “a unique opportunity to realise significant cross-selling opportunities through an expanded sell-side client base”.
Brian Carr, head of Nyfix’s US transactions services business, will join ConvergEx in a senior management position and will continue to be responsible for the day-to-day operations of the business.