Turquoise in The Parliamentary Review

Turquoise in The Parliamentary Review

Turquoise in The Parliamentary Review 2018 [Finance] Highlighting Best Practice

By Dr Robert Barnes, Global Head of Primary Markets & CEO Turquoise, London Stock Exchange Group


Turquoise Global Holdings is an investment firm authorised to operate a “multilateral trading facility”, Turquoise, based in the City of London, majority owned, 51 per cent, by London Stock Exchange Group and 49 per cent by 12 major banks. Members include a wide range of global banks, domestic brokers, specialist trading firms, and retail intermediaries. Members, with a single connection to Turquoise, can trade shares, depository receipts and “exchange traded funds” (ETFs) of 19 European countries for settlement into a respective country’s “central securities depository”. This illustrates the ability of London’s international financial community to be at the forefront of global market innovation and apply the technologies to make it work.

Turquoise shares its core principles with London Stock Exchange Group: integrity, innovation, partnership and excellence. The primary objective for Turquoise is to be the multi-jurisdiction securities trading venue of choice. Our approach is to raise visibility, widen membership and innovate with customers.

With an ageing population and an increasing reliance on private sector pensions in Europe, capital markets need to be competitive to deliver meaningful long-term investment returns. With European interest rates and real returns near zero, the focus is on efficient trading to minimise investment cost and enhance long-term returns.

By 2015, buyside asset managers, like Axa Investment Management, BlackRock, Deutsche Asset Management, Fidelity and Norges Bank Investment Management, had increasingly published views about the role of exchanges in well-functioning markets, calling also for innovation in electronic block trading. In 2015, led by a number of these largest and most respected global buyside asset managers and sellside banks, there was an intensive selection process from 20 firms, which narrowed to seven to three until Turquoise was privileged to be selected as preferred partner for Plato Partnership, a not-for-profit company comprising asset managers and broker dealers collaborating to bring creative solutions and efficiencies to today’s complex equity market place.

Repeatedly, buyside dealers had expressed their opinion of the importance of a trusted public exchange in the trading ecosystem that institutional investors could access directly, with the sellside continuing to play a role. This required for the first time the buyside, sellside and trading venue to collaborate in a new way. Subsequently, Plato Partnership entered into a cooperation agreement with Turquoise.

The result was the launch in September 2016 of Turquoise Plato™ encompassing the Turquoise dark pool services matching at midpoint price, including the awardwinning Turquoise Block Discovery™ and Turquoise Uncross™ rebranded as Turquoise Plato Block Discovery™ and Turquoise Plato Uncross™. A governance process was also introduced that could turn best practice ideas into action for the benefit of investors through more efficient trading and execution mechanisms.

Independent venue performance analytic firms had already singled out Turquoise Plato Uncross™ for the high quality of its periodic random execution mechanism that featured low price reversion after an investor’s trade, thereby contributing to consistently better trading results for investors. Building on this quality mechanism, Turquoise Plato Block Discovery™ was designed in cooperation with Turquoise buyside and sellside customers for much larger sized investments to enter Turquoise and match as undisclosed “block indications” that execute in Turquoise Plato Uncross™.

Turquoise was invited to address the IOSCO Board and Financial Market Stakeholders in 2015 and subsequently won the Financial News 2015 Award for Excellence in Trading and Technology for Most Innovative Trading Product/Service. In 2016, Turquoise was honoured to feature in The Parliamentary Review, and the following year was recognised as winner of TheTRADE’s Leaders in Trading 2017 Award for Block Trading Venue.

By listening to customers, Turquoise has delivered a single European trading venue based in London that empowers investment firms with trading innovations that can help them get their business done. The offering covers thousands of securities from blue chips to small caps in small or large trade sizes, with scale efficiency, potential price improvement and the operational benefits of straight-through processing.

In December 2017, Turquoise launched its next intraday trading innovation in partnership with customers. Turquoise Lit Auctions™ subsequently grew its activity from €1.0 million value traded in January 2018 to more than €1.2 billion in June 2018.

Some market regulators have expressed interest and scrutiny of other venues for the amount of same member– member bilateral matching they claim to process via their periodic lit auctions.

Turquoise granular analysis has shown its own Turquoise Lit Auctions™ are truly multilateral. In the period of May and June 2018, Turquoise Lit Auctions™ matched a total of more than 165,000 trades, of which only 104 trades were same member on both sides within the same maximum potential 100 millisecond randomised window for matching and with the same size on both buy and sell. This means orders sent to Turquoise Lit Auctions™ are likely to interact fully with all liquidity available in Turquoise Lit Auctions™ on a truly multilateral basis. At Turquoise, our focus is to listen to customers and prioritise how we can help them to meet regulatory obligations, reduce costs and generate revenues through new business initiatives which are developed in partnership with Turquoise. Key investment trends are the search for growth and the complementary desire to outperform benchmarks by trading block liquidity through electronic trading channels. We aim to respond to this demand with innovation and open access.

Published in The Parliamentary Review (2018).