LSE Unit Holds Exclusive Talks to Build European Dark Pool

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A consortium of banks and asset managers has selected Turquoise, majority owned by London Stock Exchange Group Plc, to build a dark pool for European equities.

A group of eight banks and seven fund managers committed themselves to setting up a not-for-profit dark pool, specializing in block trades. The consortium has said it will redirect the profit it makes to academic research intended to improve the structure of European markets.

“While these exclusive discussions may or may not lead to a binding agreement, any collaboration would have to meet Plato Partnership’s underlying principles to be not-for-profit, reduce trading costs, simplify market structure and act as a champion for end investors,” Plato said Friday in an e-mailed statement.

Plato describes itself as a relatively idealistic endeavor. Its mission statement touts “an equal and fair trading experience,” and a desire to “regain people’s confidence in the financial ecosystem.”

Its emergence comes as banks and traditional exchanges have come under scrutiny for a range of concerns, including criticism that their dark pools may favor high-speed traders over their other customers.

Companies that aren’t owned by banks, such as technology firm Cinnober Financial Technology AB and Aquis Exchange Ltd., had competed to build Plato, but the consortium ultimately chose Turquoise. The LSE subsidiary counts Deutsche Bank AG and Goldman Sachs Group Inc. among its minority shareholders. They are among the banks backing Plato. Stephen McGoldrick, project director for Plato, was also involved in Turquoise.

’Arms’ Length’

“We envision that Plato will continue to be standalone and it will be arms’ length from Turquoise,” McGoldrick said.

Choosing a licensed venue to build the dark pool will make it operational sooner. Selecting a technology partner also clears the way for Plato to proceed with further planning.

The European arm of Bats Global Markets Inc. said this month that it had removed itself from the competition to build the consortium’s dark pool.

It will unveil a block-trading initiative within months as markets prepare for European Union rules that will restrict dark-pool trading. Turquoise already has a block-trading feature in its market.

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