Citi is preparing to offer a second option to its Citi Match dark pool, building a new alternative trading system called Citi Cross to be opened before the end of this year.
According to Dan Keegan, head of electronic trading for Citi, the new ATS will offer a lower price point than Citi Match, allowing new customers, including high-frequency traders, to interact with the financial services giant’s retail flow.
"The high-frequency community has been clamoring to gain access to Citi’s retail flow," Keegan said. "With the introduction of Citi Cross, we will be exposing our HFT customer base to an amalgamation of our retail, institutional and broker-dealer flows at a point in the cue that works for all parties involved."
All of Citi’s retail flow currently passes first through Citi Match, which charges a penny a share. If there is no institutional resting liquidity with which it can interact, it goes through Citi’s market-making operation and then out onto the open market.
Citi Cross, or CX, is currently in beta testing. Once it is up and running, Citi’s retail flow that is not matched by the firm’s market-making unit will pass through CX.
"That’s where we’re going to allow all the high-frequency guys, in addition to our broker-dealer customers, to interact with that flow before we take it to the market," Keegan said.
Keegan anticipates many institutional customers will choose to interact in both pools. Though CX will not offer all of the same protections as Citi Match, the firm will not allow participants to use latency arbitrage or other strategies Citi considers detrimental to clients.
"High-frequency trading is becoming more mainstream," Keegan said. "There’s a recognition that they are a big percentage of the overall market, and that when properly governed, they add value in terms of getting shares executed."
