Trade Informatics, a privately-held US company, on October 24 launched a new service called Plia that allows buyside firms to ask operators of trading venues known as dark pools questions about the platforms, as well as the way they handle orders generally.
Dark pools, which allow for the buying and selling of stocks without revealing a counterparty’s intentions to the wider market, have become a popular way for fund managers to trade. But the platforms have drawn scrutiny in recent years on the back of high-profile fines and criticism over a lack of transparency over the way orders are handled.
The cloud-based Trade Infomatics tool allows fund managers and brokers to share information and includes a database of common questions asked by the buyside.
Allan Goldstein, Trade Informatics’ COO, said the tool had been developed with US and European regulators, along with the buyside and sellside trade bodies, the Investment Association and the Association for Financial Markets Europe.
The IA and Afme recently finalised a “standard due-diligence questionnaire”, or SDDQ, to help buyside firms query broker practices. Goldstein said the Plia product had been approved to help firms “capture, maintain, and facilitate the distribution and response” of the questionnaire.
Broker questionnaires are common in the US to help buyside firms get information from their brokers on order-handling practices, and have been on the rise in Europe in the wake of fines being levied against US broker-owned dark pools, including those run by ITG, UBS, Credit Suisse and Barclays.
The IA and Afme SDDQ initiative came about in response to this increase. But also to provide buyside firms with more detailed information from their brokers.
Gregg Dalley, head of equity trading at Schroders, said: “The SDDQ created by the AFME/IA working group together with an economical cloud-based process management tool such as Plia allows us to maintain a golden record of compliance and due diligence information.”
Dalley added it allowed them to create a “globally consistent model that may otherwise be spread around the firm on spreadsheets and in email”.
The move also comes ahead of the EU’s revised Markets in Financial Instruments Directive, or Mifid II coming into force in 2018, which will also require buyside firms to question their brokers more intensely.
In particular, Mifid II ups the ante on best execution, an investor protection measure designed to ensure asset managers get the best trading deals for their clients. Mifid II will forcing managers to take all “sufficient” steps, rather than “reasonable” steps, to obtain the best execution, and record best ex policies.
Goldstein said: “The sheer bulk of Mifid II requirements and the continuing drive for operational efficiencies mean that the age old solution of ‘throwing people at a problem’ is simply no longer tenable. The clear solution for counterparty management requirements is automation.”