Credit Suisse, one of the world’s largest investment banks, announced recently that it plans to launch a brand new stock trading platform called Light Pool.

This new automated trading platform will be aimed squarely at long-term investors such as mutual funds and traditional asset managers, rather than at the new breed of systematic and quantitative traders such as high frequency trading (HFT) firms, who have been capturing an increasing portion of stock trading volumes over the last couple of years.

You may have heard of so-called “dark pools” of liquidity, where market participants can trade with each other on a non-displayed order book. Well, Light Pool will be similar to many of these electronic crossing networks (ECNs) and multilateral trading facilities (MTFs), except that the order book will actually be displayed for all participants to see.

In a move designed specifically to discourage high frequency traders, Credit Suisse’s Light Pool will force orders to pass through other exchanges and trading venues before they are matched. While this is no problem for market participants who’s orders are not particularly time-sensitive, the added latency of going this extra step will make the market unattractive to speed-dependent HFT firms.

Another element that will make high frequency traders think twice about using the new Light Pool platform is that all participants will be identified and tagged by categories such as “opportunistic trader”. Given that HFT firms generally prefer to remain anonymous, they will most likely stay away from this particular market.

All of these steps have been taken by Credit Suisse to ensure that the new Light Pool platform remains the preserve of long-term investors and does not get overtaken by high frequency traders in the same way that the majority of stock markets, not only in the United States, but around the world, have been recently.

Time will tell whether this will be a recipe for success.

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Filed under: Investing Software

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