June 1, 2017 / 7:20 PM / 2 months ago

REFILE-Cowen to end mid-point matching in Millennium dark pool

3 Min Read

(Corrects spelling of Cowen in headline)

By John McCrank

NEW YORK, June 1 (Reuters) - Financial services company Cowen Inc closed its acquisition of Convergex on Thursday and said it will shutter a key part of the off-exchange trading platform, Millennium, it acquired with the brokerage.

Millennium, also known as a "dark pool," will stop offering continuous trading on June 23.

The private electronic trading venue is one of more than 30 broker-run dark pools, also known as alternative trading systems (ATSs), in the United States that compete with 13 public stock exchanges, including the Nasdaq and the New York Stock Exchange.

That fragmentation, which can make it more challenging to get trades done, has been a source of frustration for many of Cowen's customers, Jeffrey Solomon, president of the company, said in a note to clients.

"By discontinuing Millennium ATS's midpoint matching engine, Cowen has the ability to proactively reduce fragmentation – something we and many of our clients feel will improve U.S. equity market structure," he said.

Like many other dark pools, Millennium matches trades at the midpoint of the best bid and offer shown on public exchanges, giving the potential for better prices.

Millennium was the 16th-largest U.S. equities dark pool out of 31, according to the latest statistics from the Financial Industry Regulatory Authority, matching more than 38 million shares in the week of May 8.

Dark pools are more lightly regulated than exchanges and do not have to provide information such as trade sizes or prices to the public prior to trades taking place.

The electronic trading platforms were originally used to get large orders done with minimal price movement, but they gained popularity for smaller orders as well, in part because their fees are generally lower than those at exchanges.

As their usage has increased, so too has the scrutiny of regulators, which have brought enforcement actions against several dark pools in recent years for fraud and conflicts of interest in order routing.

Cowen, which has never operated a trading venue, said it would continue to operate a part of Millennium that executes pre-matched orders and reports the trades on behalf of exchanges and broker-dealers.

Millennium was built and is hosted by Thesys Technologies LLC, on behalf of Convergex. Thesys recently won the contract to build a build and run a massive stock and options trading database aimed at helping regulators police the increasingly fast, fragmented and complex markets. (Reporting by John McCrank; Editing by Steve Orlofsky)

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