The development of buy side-owned equity trading venues has attracted interest from long-term investors.
U.S.-based Luminex Analytics & Trading LLC, set to open for business this year, and Europe-based Plato Partnership Ltd. are being developed against a backdrop of increased pressure on costs, regulatory demand for best execution, recent regulatory investigations into the U.S. dark pools operated by banks, and concerns about some participants in existing dark pools.
“We manage our equity exposure largely internally, and we also do the trading internally,” said Thijs Aaten, managing director, treasury and trading, at APG Asset Management, Amsterdam, Netherlands. The firm has €400 billion ($453.3 billion) in assets under management, including the €344 billion pension fund ABP, Heerlen, Netherlands.
“I'm definitely willing to consider new venues that we can trade on. If there is an advantage to it, then it would be silly not to make use of it. It is our fiduciary duty, and if there is a new opportunity, we have to investigate.”
Luminex is a buy side-to-buy side trading venue owned by a consortium of nine money managers, representing a total of about $15 trillion under management: Fidelity Investments, BlackRock Inc., Bank of New York Mellon Corp., The Capital Group Cos. Inc., Invesco Ltd., J.P. Morgan Asset Management, MFS Investment Management, State Street Global Advisors and T. Rowe Price Group Inc.
Managers declined to disclose their financial commitments.
Plato's consortium includes two money managers: Deutsche Asset & Wealth Management and Norges Bank Investment Management, manager of the 6.6 trillion Norwegian kroner ($870 billion) Government Pension Fund Global, Oslo. “We believe we will be naming more firms in coming months,” said Stephen McGoldrick, project director, Plato Partnership, in London.
Both venues were created to give long-only money managers and institutional investors back the power they need to fulfill their best execution requirements, and to ultimately save costs for their clients when trading large blocks of securities.
APG is keen to trade with long-term asset holders, Mr. Aaten said. “(That type of trader,) taking a fundamental but opposite view on the same company, is the cheapest to trade with. But finding that long-term trader is difficult. This is what those new, buy side-to-buy side platforms are about — helping to find those long-term asset owners, (which) will lower our trading costs.”
He said the traditional model, where the sell side acts as a go-between for buyer and seller, and high-frequency traders are admitted, is more expensive. High-frequency traders “don't have a fundamental view on an equity, but trade on information from the order book. Because of technological advantages they have this information before I do ... in our experience, they are the most expensive type of trader to trade against,” Mr. Aaten said.