Robert Barnes, CEO of Turquoise tells Best Execution how the exchange is moving with the times.
What was the goal when Turquoise launched in 2006?
Turquoise was created as a pan-European MTF, by users for users, to innovate and offer benefits for the wider community. Our focus is clear: to offer efficiency at the point of execution. We’ve created a multi-country platform on one connection, trading securities of 18 countries, giving clients access to a lit order book including emerging market securities and midpoint with size priority where larger orders jump to the front of the queue.
We achieved a new record in January 2015, trading an average daily value of €5.1 billion compared to €1.8 billion two years previously. We have grown more than four times in midpoint and, in 2014, covered our costs each month for the first time. Turquoise now has 9% of pan-European order book share of trading.
Do you see fragmentation as a problem in the current marketplace?
Fragmentation is a common factor worldwide, with the rise in electronic trading resulting in smaller trade sizes. We value the importance of the midpoint, as witnessed by the success of Turquoise Uncross™, our randomised midpoint uncrossing for larger and less time sensitive passive orders. It has become the first order book mechanism in Europe to reverse shrinking trade size, doubling the average trade size within midpoint of €10,000 per order and higher when matching orders facilitated by Turquoise Block Discovery™.
What lay behind your decision to launch Turquoise Block Discovery™ in October 2014?
Turquoise Block Discovery™ was launched in anticipation of the arrival of MiFID II. It facilitates larger block orders by matching Block Indications and interacting with existing liquidity in Turquoise Uncross™. Investors can trade exceptionally large blocks with no information leakage in both large and mid cap stocks. Averaging €200,000 per trade, the level of many block transactions are above the large-scale threshold contained in MiFID II. We are ahead of the field in fulfilling the needs of our clients. If a customer has a trade at €1.5 million, we match it at midpoint and this can also match inside the lit order book tick size, all through one connection. If members undertake a single trade at, say, €1.5 million, we’re also delivering significant savings in post-trade clearing costs compared with 150 trade tickets times €10,000 average trade size
How do you feel about the increased competition in the market?
A key feature of a well-developed financial centre is competition and entrepreneurial activity. There’ll always be new entrants because that’s the natural cycle of a healthy ecosystem. We’re innovators ourselves and believe we’re at the centre of this new landscape. We listen to and respond to customer needs, mitigate costs and offer a niche service.
What are the main areas of growth that lie ahead for Turquoise?
We’re looking to continue to raise our visibility across the continent, widen our membership to include more brokers and intermediaries at the regional and sector level and to pursue still more innovation. We want to diversify the variables that are important to our customers and to extend our trading in mid and small caps to create an even more inclusive stock universe. We’re also keen to broaden our geographical spread to include more countries under the MiFID umbrella.
Our focus is on helping our customers get their business done.
How do you anticipate that other asset classes will evolve in terms of trading venues?
Non-equities products can definitely benefit from economies of scale and participating in regulated platforms. From July 2014, regulatory non-objection enabled CCPs to clear Exchange Traded Funds (ETFs) on a fully interoperable basis. ETFs today are not recognised as MiFID liquid instruments, but from January 3, 2017 go live of MiFID II, ETFs become MiFID instruments. MiFID II represents a good opportunity to create an on-order book structure and improve post-trade activities. Ultimately, we thank the regulators for providing a framework within which we can behave as entrepreneurs.
There is an increasing focus on long-term self-management of pensions and old age security; with real returns near zero, there’s more emphasis on efficient capital markets with low market impact costs at the instant of execution. Efficient market structures with lower implicit execution costs can add to long-term returns.
What do you think the impact has been on the primary exchanges of the arrival of the many MTFs now in the marketplace?
We see ourselves not as competition but in co-operation with primary markets to grow the pie rather than just taking a slice of it.
Turquoise is clearly positioned not to compete with primary markets for listings. Our focus is relentless innovation of quality intraday execution; no opening auction, no closing auction, just lit and midpoint dark continuous trading.
Secondary market liquidity drives primary market liquidity. Increasing trading activity can contribute to lower implicit costs of investment and ultimately lower costs for issuers. This is particularly true for smaller companies which often suffer from high implicit costs due to investors facing wider bid-offer spreads.
At Turquoise, we are big promoters in building liquidity beyond blue chips to mid and small caps. We have made it a priority to increase our coverage of smaller issuers and bringing on board investors, including domestic brokers and retail intermediaries that specialise in this area.