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"We found a natural partner in terms of where we see the liquidity landscape, and the challenges in the landscape and where we could provide a solution," says Adam Toms, managing director and head of European electronic and portfolio trading at Lehman Brothers in London in an interview with Advanced Trading.
What's differentiates Baikal from other venues — known as multilateral trading facilities or MTFs — is that it's going to be a subsidiary of the LSE Group and draw upon existing technologies " including a portion of Lehman's suite of liquidity-seeking algorithmic trading strategies and smart-order routing modules as well as its new anti-gaming logic. "From the exchange side, the LSE brings the experience of running an industrial strength platform and market surveillance tools," says Toms.
Unlike some of the other multilateral trading facilities or MTFs that started with a concept and had to build systems from scratch, Baikal has existing technology and a data center already. "This is more than just a design concept," emphasizes Toms, who says they have six months to build the systems. By combining "the best of LSE's existing technology with some of Lehman's algorithms and building some new technology housed in a separate entity, Baikal is on track to launch in the first quarter of '09, says Toms.
However, with all the new venues including Turquoise, BATS Europe and Nasdaq OMX, due to come online by year-end, there is concern on the buy-side that Europe is in danger of fragmenting order flow, says Kevin McPartland, senior analyst at Tabb Group, who recently authored a report on European trading. "The buy-side told me, the last thing we want is to turn into a situation like the states where it's got 50 venues," says McPartland.
To prevent the fragmentation of Pan European securities market that has occurred in U.S. equity markets, LSE and Lehman plan to bring on other brokers and form a consortium that links their dark liquidity pools, according to Lehman executives.
