Launch of Luminex shows competitive market structure of US equities
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2 November 2015Brad Bailey
The launch for trading this week of Luminex is another example of the creative forces that come to light in the competitive and open market structure of US equities. Luminex will create an entirely dark, non-quoted, market protocol for real money buyside institutions. This has been described by some as as an exclusive club, but so what? The Luminex ATS is owned by a consortium of buy side firms: Blackrock, BNY Mellon, Capital Group, Fidelity, Invesco, J.P. Morgan Asset Management, MFS Investment Management, State Street Global Advisor, and T.Rowe Price. The platform will begin trading this week with seventy three institutions with a minimum AUM threshold of 1 billion dollars. In aggregate, between the consortium owners and the other members of the ATS represent nearly 65% of US fund assets under management. The firm will be run as a not-for-profit with a low cost structure. The market protocol is completely dark, and non-quoted. Furthermore, it will run as entirely closed system, with no ability to route orders from within Luminex. The fabric of integrated venues-exchanges, ECNs, ATSs, internalization engines that make up the U.S. equity markets create an environment that offers tremendous choice for investors and traders of all stripes. From the smallest retail clients, offered the key to this entire lattice at the cheapest and quickest executions ever through the wholesale market, to the largest financial institutions, who can create a venue that meets their needs-moving natural size, minimizing market impact and information leakage. Luminex is a powerful example of innovation in a market that fosters (perhaps forces) innovation. It will be an example of what a buy side consortium can create in an equity market with an already existing diverse means of accessing liquidity. Furthermore, it can set the tone, and structure for the evolution of other buy side consortia in asset classes with less diverse liquidity choices than US equities, and where access to liquidity remains an ongoing challenge, such as in fixed income. Whether another purely dark venue, with no incentivized intermediaries can gain noticeable market share, is always an open question. Low match rates are typical of a venue of this sort- but the users of the platform represent such a large chunk of assets under management and resident, natural liquidity is so great within the subscriber firms. It will be interesting to see the results of trading with this network and the market protocol.