Plato Partnership Trading Platform Aims to Change the Market Model

A consortium of weighty buy- and sell-side firms have joined forces under the Plato Partnership banner, focused on improving the market model for block equities trading, lowering data and trading costs, and feeding data back to the regulators for market analysis, aiming to be live during the first half of 2016.

"We came together as a group in November 2014 with a high level of intent to explore the opportunity in a broad sense, with the concepts that it would include the Market Structure Innovation Center (MSIC) at its core, block trading and trying to make sure the market embraced the direction towards larger trades," explains Plato project director Stephen McGoldrick, also head of market structure at Deutsche Bank. "Since then we have developed a market model that is increasingly detailed and is now in a position where we are able to engage with potential platform providers as we look for a partner on that front."

Better Together

AXA Investment Managers, Union Investment, JPMorgan Asset Management and Fidelity Worldwide Investment joined the group in March, and McGoldrick says it is "fundamental" to have the buy side involved from the start.

"It's their clients that will benefit from better fills and their trading patterns that are not being fully accommodated in the marketplace," McGoldrick says. "Plato's scope is yet to be perfectly defined but it can be described as the buy- and sell-side interface relating to the trading of equities, which can be post-trade, surveillance, confirmations, all of the due diligence work that is coming out of MIFID; for the sell side to do that without the buy side would be both condescending and inefficient."

It’s not looking for direct returns. Plato is trying to fix some of those things that we see as being flawed or missing from the current market structure. - Stephen McGoldrick, Plato Partnership project director.

Swelling Ranks

More members are expected to join in due course, but for now Plato is focused on selecting a development partner for the platform by holding a kind of "beauty pageant" for six firms (Aquis Exchange, BATS Chi-X Europe, Cinnobar, Euronext, Nasdaq and BIDS Trading) in an online poll. Cooperation and transparency are key elements that have been embraced from the outset, according to McGoldrick.

"We have spent some time elaborating and agreeing upon the values and vision for Plato; openness, transparency and collaboration were absolutely at the center of that," McGoldrick says. "It's not looking for direct returns. Plato is trying to fix some of those things that we see as being flawed or missing from the current market structure. It's basically us walking the walk and doing what we said we would do, which is having faith in the market to better design itself."

Greater Good

While the optimization of the market is of direct benefit to the members of the consortium it would be rather cynical to cast accusations of altruism at such a project.

Revenues that are generated through the trading utility will be used to commission research through the partnership's MSIC, feeding off data generated by the platform to produce independent research and analytics to inform both market participants and regulators.

Plato has also opened up the research projects conducted by the MSIC to market opinion, encouraging proposals for future areas of study.

"It's terribly easy to look at Plato and see it simply as a trading platform," McGoldrick says. "One of those missing elements is a vehicle that can deliver to the marketplace a utility function, and once we've got a collaborative platform that we can re-purpose or apply to different tasks, the financial and logistical barrier for initiating future rationalization or efficiency projects is dramatically reduced."

While the direct returns for the members of Plato cannot be ignored entirely, the collaboration demonstrates a determination to set itself apart from a number of other alternative venues that have come to market in recent years.

Whether or not the consortium can "walk the walk," as McGoldrick puts it, remains to be seen, but an expanding pool of participants and positive attention from other, non-equity, asset classes sets Plato in good stead for launch next year.

The Bottom Line

• The Plato platform will go live next year with the dual objectives of optimized automated block trading and funding the Market Structure Innovation Center to conduct market model research.

• While primarily focused on block equities trading, Plato is taking into consideration other equity-like instruments for the near future.

• The group is composed of 15 buy- and sell-side firms with more expected to join before the 2016 launch.