Gloomy outlook from dark pools

Dark liquidity pools are failing to spark new IT job opportunities, despite the impending MiFID launch opening the flood gates for Alternative Trading Systems.

The November launch of the Markets in Financial Instruments Directive (MiFID) is the catalyst behind the bubbling rise of dark liquidity pools and other Alternative Trading Systems (ATSs) as it legalises such off-exchange trading. Dark pools are financial markets which can't be accessed by the general public; for example, brokers might place orders directly with each other on an electronic cross network.

"No companies are specifically recruiting hugely to develop their in-house ATSs," says Andy Strang, a consultant at the search firm Kaizen Partnership.

"The IT skills required aren't particularly niche since the trading systems already exist internally and simply require technologists to link up the order flows between them."

MiFID has also sparked project Turquoise, the secretive initiative by seven leading investment banks to create a rival to the London Stock Exchange. But these firms are using their in-house algorithmic expertise to tackle these initiatives rather than hunt for new talent.

"The majority of IT focus around dark liquidity pools is already taking place in conjunction with the algorithmic/automated trading IT areas," says Paul Thoma, managing director of investment banking IT search firm Garthorne Associates.

In the short term, Thoma predicts MiFID rather than dark pools will create job opportunities, although many of those roles are likely to be in legal and compliance, rather than IT.

"When MiFID comes in, everyone will want to make sure they are compliant and dark liquidity pools will not have an impact until end of 2007 and beginning of 2008," says Thoma.

A new report from IT consulting firm Celent predicts MiFID will strengthen liquidity. But it is sceptical about the effect MiFID will have on ATS trading as a whole, predicting that ATS will only have snagged 5% of market share by 2011.