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Financials

Chi-X, BATS change dark data to reassure clients

* European investors shift trading to Turquoise, Smartpool

* Banker -- volumes will return back within a few days

LONDON, May 21 (Reuters) - Chi-X Europe and BATS have changed the way they report data from their “dark pools” after a U.S. report alleged they were disseminating information that helped high-frequency traders identify big investor orders.

Following the paper by Themis Trading earlier this month entitled "Data Theft on Wall Street", European investors shifted trades from Chi-X and BATS, Europe's leading alternative trading platforms, to other dark pools including London Stock Exchange-controlled Turquoise this week. LSE.L

Dark pools are venues that allow buyers and sellers of large orders of shares to avoid revealing pre-trade information and signalling their intentions to the rest of the market.

“We had a lot of calls from clients asking us what was going on and asked us to stop routing flow to them for a while,” said a specialist in trade execution at a big European broker. “They said it was better to be safe than sorry.”

Turquoise had the largest dark trading volumes on Thursday among European alternative venues, known as multilateral trading facilities (MTFs), up from a ranking as sixth-largest just a few months ago, LSE said. [ID:nLDE64J0XB]

Turquoise and Smartpool gained dark trading volume in the past few days, while Chi-X and BATS volumes slipped, Thomson Reuters data showed.

Themis cited two problems with the way some platforms provided post-trade data.

They reported multiple trades using a consistent order identification number, allowing nimble players to infer information about orders and pricing strategy.

In addition, some revealed information about which side of a trade was passive, alerting others to hidden resting orders.

“In response to market participant reaction we immediately changed the data so that even the very, very limited post-trade data from the dark book has been stopped.” said Chi-X Europe Chief Executive Alasdair Haynes in a statement on Friday.

“This is now sorted, and all our clients are aware of this immediate change,” he added. The change was effective from Friday.

BATS has told its European clients it will obscure order ID numbers with zeros on all dark pool trade messages starting on Monday.

By next week, trading data should show whether these moves were effective in encouraging investors to return or whether Turquoise will hold on to its gains.

“Give it a couple of days and the flow will come back (to Chi-X and BATS),” the bank execution specialist predicted.

David Lester, Turquoise chief executive officer, said that since the firm’s acquisition by the LSE, Turquoise had moved to differentiate its dark pool as a safer venue for brokers to trade large institutional client orders.

High-frequency traders can come into its dark pool, but investors are given a choice of whether to interact with them, he said.

Turquoise ownership is split 51 percent by the LSE and 49 percent by 12 big banks. (Editing by Karen Foster)

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