BIDS TRADING BROADENS EUROPEAN SIGHTS

By Tim Cave, Financial News
July 9, 2015

BIDS Trading, the US equities block trading venue vying to provide technology to a new European platform called the Plato Partnership, has its sights set on finding a route into Europe irrespective of the outcome of Plato’s tender process, according to its chief executive.

Tim Mahoney told Financial News the US equities operator was “carefully evaluating the best way to take our model and expand it into Europe”.

BIDS is one of five firms still in contention, along with Bats Chi-X Europe, Aquis Exchange, Turquoise and Nasdaq, to become technology provider to the Plato Partnership, a joint venture between banks and buyside firms that plans to launch a not-for-profit European block trading platform this year and is undertaking a beauty parade for the tech role.

Many of BIDS’ backers, including Goldman Sachs, Morgan Stanley and UBS, are also involved in Plato, but underlining his own firm’s intent to break into Europe, Mahoney said BIDS is “not just limited to [Plato]” and had spent the past few months exploring a number of opportunities and potential partners.

“Our goal is to find a path to Europe, and that’s what our customers have asked us to do,” he said.

The US company, which established a UK unit in May, was founded in 1994 and is owned by a consortium of 12 banks, brokers and trading firms. Registered as an alternative trading system, or ATS, it is one of the largest block-focused venues in the US, according to analysts.

BIDS’ potential move into Europe signals a renewed appetite among institutional investors to find new ways of trading large stock orders. The ability of institutions to buy and sell big blocks of shares without revealing their intentions to the wider market has become difficult as venues have geared themselves towards smaller orders. The rise of algorithmic trading has also resulted in orders being broken down into smaller pieces.

While there are several well-established platforms designed for block trading, including buyside-focused platform Liquidnet and Posit, which is run by agency broker ITG, several new initiatives have emerged in recent years.

They include Luminex, which is backed by nine money managers and is set to launch in September this year. Luminex will restrict access to buyside firms with a long-term investment horizon and will require users to execute a minimum portion of each order they send to the system if a match is found – an additional order type will allow matched orders to be increased via an anonymous process that lasts for 20 seconds.

Details are more sparse on Plato, partly due to uncertainty around the revision of Europe’s trading rulebook, the Markets in Financial Instruments Directive, that will come into force in 2017. Mifid II will impose caps on the amount of trading that can take place on off-exchange venues, but trades that are deemed large in size will be exempt.

Mahoney said BIDS is planning its European advance “cautiously”, but added it hopes to have a European solution in place by the time Mifid II comes in. He said his firm was open to partnerships: “There are a whole bunch of things we don’t know, and if we can find a partner to help us navigate through the complexities of the European market we will do that.”

Unlike some venues such as Liquidnet, BIDS uses a sponsored access model, whereby broker-dealers connect their customers to the platform. It also allows conditional orders, whereby brokers can rest large orders in BIDS, should a match be found, while simultaneously attempting to execute the order through smaller orders across multiple venues.

Conditional orders also form part of Turquoise’s Block Discovery Service, which the London Stock Exchange-owned venue launched in conjunction with several brokers last October, and is geared towards institutional investors.

However, Mahoney said he believes “there is room for competition in Europe”.