Fidelity Investments, State Street Global Advisors, MFS Investment Management, and six other fund managers has teamed up to start a dark pool dedicated to large stock trades that will open later this year.
The new market -- named Luminex -- will admit asset managers who are looking to trade a large quantity of shares at once, according to a statement. Fidelity Investments began to discuss setting up the dark pool more than a year ago, according to a person familiar with the matter.
The other members of the group are Bank of New York Mellon Corp., BlackRock Inc., Capital Group, Invesco Ltd., JPMorgan Asset Management, and T. Rowe Price Group Inc., according to today’s statement.
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“Our goal is to build trust among users through transparent trading rules and protocols and efficient execution,” Michael Cashel, interim chief executive officer of Luminex, said in the statement.
Dark pools are private trading venues where investors can buy and sell shares without making their orders visible to the rest of the market. Dark venues were originally set up to handle large block trades, but the size of the orders they process has fallen in recent years.
Dark pools have come under increasing scrutiny in the past year. The Securities and Exchange Commission and New York attorney general are both investigating the platforms. Last week, the SEC hit UBS Group AG with a record fine on a dark pool for failing to follow rules designed to ensure stock trades are executed fairly.
In response to the pressure, dark pool operators have been opening up, publicly disclosing their previously hidden rules of operation, and regularly publishing trading volumes through the Financial Industry Regulatory Authority.
The new venue will require traders to commit to a minimum block size when entering orders to buy or sell stocks. Before a transaction, the customer will be able to increase the size of the order.
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Fidelity said in April that it had explored setting up its own dark pool. Vincent G. Loporchio, a senior vice president at the world’s second-biggest money manager, said the venue would improve transparency and liquidity. The firm’s trading division already runs a dark pool called CrossStream.
Luminex Trading & Analytics will operate as an independent business, though it will be governed by a board that has one representative from each of the asset managers. It will seek to be “self-sustaining,” according to the statement.
“ J.P. Morgan Asset Management is looking forward to participating in this consortium, which we think is an innovative way to source block liquidity that will result in lower transaction costs for our clients,” Curt Engler, head of US equity trading at JPMorgan, said in an e-mailed statement. “With greater transparency and a self-sustaining structure that provides no return on investment for participants, we believe the consortium demonstrates a commitment to put investors first.”
Luminex would not be the first trading venue to be set up by a group of investors. IEX Group Inc., made famous by Michael Lewis’s “Flash Boys” book, is owned by a consortium including hedge funds and mutual funds. It opened for business on Oct. 25, 2013, and its share of total US equity trading hit 1 percent in November.