Liquidnet, the agency execution specialist, has launched a new solution aimed at providing European buy-side traders with more effective access to bilateral liquidity. The move comes as bilateral trading has grown to become a significant component of the European equity market, accounting for close to 50% of total market volumes, according to a recent report from the firm.
The new offering integrates access to bilateral liquidity through Liquidnet’s front-end application and its liquidity-seeking algorithmic suite, providing a consolidated and controlled route to interact with leading liquidity providers. The launch is supported by partnerships with four market makers, including XTX Markets, with more expected to join in the near future.According to Gareth Exton, Head of Execution and Quantitative Services, EMEA, at Liquidnet, the growth of bilateral trading is reshaping how liquidity is accessed in Europe. “This liquidity is now a sizeable part of the market,” he tells TradingTech Insight. “While it’s not always right for every person at every point in their order lifecycle, it certainly has a place. As a firm that has always tried to navigate the fragmented landscape and provide optional access to liquidity, we felt this was the right time to introduce this solution. This means clients can access this liquidity through Liquidnet if they choose to. The important thing is they have the choice.”
The rise of bilateral trading is a direct consequence of the MiFID II regulations, which aimed to increase transparency in financial markets. While the rules have brought more trading onto lit venues, they have also inadvertently spurred the growth of off-book trading, including bilateral arrangements. Exton acknowledges this evolution, stating, “You have to consider why this bilateral liquidity exists at all. In some ways, it was always there, just hidden in broker crossing networks, through risk desks and high-touch channels. It was always available, but now it has been brought into the light, and MiFID II has helped with that transparency. Market makers have improved their PR and their relationships with the buy-side, so now it’s more out in the open. And it’s there because the liquidity isn’t available on the lit market, so we can no longer ignore it.”
Liquidnet’s solution is designed to address the challenges that buy-side firms face in accessing this fragmented and often opaque liquidity landscape. Exton highlights the practical difficulties that firms encounter: “One of the reasons we’ve introduced this is that buy-side firms have continually told us they want to interact with this liquidity but aren’t sure how to connect from a technical or onboarding perspective. We can come along and say that we have a solution that can take you to a number of market makers. We can put it into workflows, analyse the flow, tweak it, customise it, and make it right for you. I think that, as part of the overall service we already provide, this is quite attractive to the buy-side, rather than them trying to plug it into their EMS and figure out when in the lifecycle to hit that quote.”
A crucial element of the new offering is the flexibility it provides to both buy-side firms and liquidity providers. Liquidnet will not be curating the liquidity on offer, but rather empowering the buy-side to make their own choices. “We are not pre-determining whether liquidity is good or bad, or if one liquidity provider is better than another based on some arbitrary metrics when onboarding them,” points out Exton. “That is for the buy-side to determine. We are focused on post-trade analysis through our execution consulting service, looking at the quality of executions and what makes sense. We will work with the buy-side because what is good liquidity for one firm is not necessarily good for another. So, we aren’t deciding upfront which market makers to work with. We will work with the buy-side because what is good liquidity for one firm is not necessarily good for another. So, we aren’t deciding upfront which market makers to work with. We look at every LP that has liquidity someone might want at some point in their order lifecycle.”
The solution’s integration into the existing Liquidnet workflow is a key differentiator, according to Exton. He concludes, “I think that’s where we’re slightly unique versus some of our competitors; we can integrate this into workflows through the application, rather than just through algos. The differentiator for us is providing workflows through the front end, not just at the smaller electronic execution size level. It’s much more of a workflow tool than an algo.”
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