LONDON A group of asset managers and banks are trying to cut the cost of trading big blocks of shares via so-called dark pools by teaming up with the London Stock Exchange Group's (LSE.L) Turquoise subsidiary.
The new venture brings together for the first time the "buy-side", or funds who invest in shares, the "sell-side" banks who channel share orders, and a trading platform which executes those orders.
It also shows the pressure on both sides to cut costs in a business where margins are already thin and regulatory costs are increasing.
Michael Bellaro, global head of equities at Deutsche Asset Management, said finding enough liquidity to bring back block trading was "mission critical" for asset managers to cut costs.
Turquoise CEO Robert Barnes said with real market returns near zero and interest rates in negative territory, investors look to block trading to help them outperform benchmarks.
Plato Partnership, which includes Citigroup (C.N), Goldman Sachs (GS.N), AXA Investment Managers (AXAF.PA) and Franklin Templeton, said it had signed the co-operation agreement with Turquoise.
Turquoise is 51 percent owned by the London exchange and trades shares across 19 European countries. The rest of Turquoise is held by 12 investment banks, some of whom also back Plato. No equity stakes are involved in the Plato-Turquoise deal.
The cooperation agreement coincides with a planned merger of the London exchange and Deutsche Boerse (DB1Gn.DE).
The tie-up's main focus is on Turquoise's "midpoint dark order book" which handles trades worth over 250,000 euros (209,050 pounds). It will be renamed Turquoise Plato, but remains open to any user.
Plato members will not have any financial privileges such as cheaper fees when using Plato Turquoise, Nej D'jelal, managing director of equities at Barclays, said.
Dark pools keep share transactions under wraps until they are completed to avoid big price moves, but have come under scrutiny by regulators who want more transparency in trading.
The European Union will implement new curbs on dark pool trading from January 2018 but the large trades Plato Turquoise is aiming for will benefit from exemptions.
Turquoise's non-dark or "lit trading" service is not part of the deal.
Dark pools have been accused of favouring some investors like high-speed traders, over other customers.
A venture backed by the top asset managers and banks in Europe could suck liquidity from other dark pools unable to attract similarly sized trades, making it harder for users like high-frequency traders to deal in the dark, industry officials say.
But Plato said the new platform would seek to ensure "the protection of orders with the goal of ensuring fairness for all participants".
Plato, a not-for-profit industry consortium, will invest its share of revenues into research into increasing market efficiency, with improvements in trading less liquid shares in small companies next on the agenda.
Britain is due to leave the European Union and Turquoise currently uses a "passport" under the bloc's rules to offer cross-border share trading. Turquoise and Plato officials did not elaborate on what would happen if Britain lost those passporting rights.
(Reporting by Huw Jones. Editing by Jane Merriman)