ferable into fixed income where they
were experiencing increasing liquidity
problems and encouraged us to move into
this asset class,” says Mark Pumfrey, head
of EMEA at Liquidnet.
However, growth of the fixed income
business has been slow. The venue cur-
rently has 70 institutions on it, compared
to the 850 asset managers on the equity
side. Getting traction requires size and
diversity, says Pumfrey—in effect liquidity
begets liquidity.
“You need to have a vast array of differ-
ent institutions in different parts of the
world to give you a very different match
rate,” he says.
Like MarketAxess, the company has
opened up to allow sell-siders to use it.
But while dealers can participate they can
only do so on a firm rather than indicative
basis. Yet it seems unavoidable to have the
sell-side involved in fixed income markets.
There have, however, been a few pure
buy-side to buy-side electronic initiatives
in equities. Luminex was formed in 2015
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Spring 2017
by nine money managers as a dark pool
venture strictly between buy-siders. The
platform, which currently has 160 sub-
scribers, offers equity block trading with
a minimum of 5,000 share lots. The large
trade size means that participants them-
selves have to be big—generally at least $1
billion in assets—to use the venue. Buy-sid-
ers need also to have long-term investment
horizons—high-frequency traders (HFTs)
are not permitted. Much of the motivation
for setting up Luminex was a frustration
with dealers over issues like information
leakage, lack of transparency, low average
trade size, and higher fees.
Decline in trust
“The buy-to-buy trading is definitely
expanding and part of this is down to the
decline in trust between the buy-side and
brokers and the worry about information
leakage,” says one senior official at an elec-
tronic marketplace who asked to remain
anonymous.
But the issue of information leakage is
also a concern for electronic venues. One
of the criticisms levelled at them is their
requirement to access trading books.
Many electronic platforms sweep or
scrape trade blotters to obtain informa-
tion for a match—rather like a dating app
checking your Facebook to see if there
is an eligible match with someone else’s
Facebook. The practise is viewed as
anathema by the buy-side.
“Certain platforms have the technology
and would like to sweep the blotter and
into the order management system,” says
Pioneer’s Berwick. “It creates a lot of
noise which is not ideal for us. It’s nice
to have the functionality as an option but
certainly not as a default. The platforms
say that’s how you need to do it to get
higher hit ratios.”