Going underground! SNB black swan driving firms toward dark pools – LeapRate Interview


A battle of wits between creators of events that cause severe market volatility and dark pool liquidity providers is beginning. Norbert Lukasiewicz of Divisa Capital explains the ethos behind the imminent launch of OTCxchange, the firm’s anonymous trading venue.

In times of great volatility and events which cause vast disruption, is it best for liquidity providers to keep their cards close to their chest?

An increasing demand for dark liquidity has emerged recently, thus allowing market participants to execute orders anonymously via what is known as a dark pool.

Dark pool venues post Swiss National Bank removal of the 1.20 peg on EURCHF are perhaps an antidote to pricing difficulties that can arise from events such as this.

LeapRate today spoke to Norbert Lukasiewicz, ‎COO at Divisa UK Ltd, who went into detail on this matter, with a view to ascertaining the need for anonymous liquidity as the firm prepares to launch OTC Xchange, a purpose built anonymous trading venue.

With regard to the need to go anonymous post Swiss Franc event, Mr. Lukasiewicz detailed to LeapRate that dark pools make trading more efficient and very often more cost effective, which is why they’re so popular in equities world.

With regard to LeapRate’s question as to whether liquidity may shift toward dark pools, and if so, whether brokers and market participants will have specific requirements from a dark liquidity provider, Mr. Lukasiewicz said that “There are a few things that liquidity takers such as brokerages look for in anonymous venues, one of which is minimising market impact, and getting more efficient execution. Another factor is hiding their market sentiment which, in case of B-Book Brokers is driven by their internal exposure.”

“Dark venues also encourage competition. It’s all about quoted price and liquidity behind it.” stated Mr. Lukasiewicz. “Our venue is using Citi Bank as central counterparty (CCP) so, as long a participant has a Tier 1 or Tier 2 prime brokerage, they can trade against hundreds of counterparties without having a direct relationship with them. Additionally CCP model significantly reduces counterparty risk for all participants.”

“Under this system, both sides are facing central clearer but they don’t know each other, so therefore no legal paperwork is necessary, as long CCP relationship is established. Essentially you trade with whoever has good liquidity at this point and you’re not restricted to your usual set of liquidity providers” explained Mr. Lukasiewicz.

LeapRate asked Mr. Lukasiewicz if this type of operation could be a good antidote to circumstances such as the lack of ruble liquidity that happened in December which blighted many retail brokerages and venues, resulting in temporary suspension of ruble pairs.

Mr. Lukasiewicz concurred that in situations like that any extra liquidity source is beneficial. “In dark pool you can simply quote prices which reflect true risk appetite (or lack of it), whereas in a disclosed environment, liquidity providers may be afraid to be that transparent. It is either a price + size, or price + size + annonomized tag. For our venue we’re going to use the second model so that you can still monitor performance of your counterparties but you don’t know who is behind individual tags” he said.

As far as Divisa’s new service is concerned, LeapRate asked Mr. Lukasiewicz to confirm whether the dark pool service will be provided to retail FX firms as a liquidity source and if so, if it can be capitalized in the same way as disclosed liquidity.

Mr. Lukasiewicz confirmed that “Of course, retail brokers will be participating in our venue. It’s up to them how they want to interact with it however the initial idea is to give them a complementary source of unique liquidity. I don’t expect brokers or other participants to be solely using anonymous liquidity, but a high quality dark venue can significantly improve their hedging efficiency and potentially open new business opportunities, e.g. pricing other participants.” concluded Mr. Lukasiewicz.

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Going underground! SNB black swan driving firms toward dark pools - LeapRate Interview

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