Cboe BIDS VWAP-X, a trading mechanism which allows participants to source and match liquidity at a forward benchmark price, has launched in the UK and had a record day last month but faces regulatory challenges to be offered in the European Union.

Alex Dalley, head of European cash equities at Cboe Global Markets, told Markets Media that the region’s first venue-based trajectory crossing service was launched in the UK in September 2024, for trading in UK and Swiss securities. Non -EU investors are also able to  trade EU securities.

Dalley described the UK launch as a success with a steady increase in participation and volumes, reaching a high-watermark of €6.1m of value traded in a single day on 3 March 2025. Average daily traded value in March was €1.4m, up from €979k in February and €695k in January, according to Cboe.

“The initial focus has been on establishing a healthy mix of early adopter banks and brokers, and maintaining a high level of integrity in the platform,” Dalley added.

He continued that it will take time for liquidity and volumes to build, as with all new trading mechanisms. For example, Cboe launched periodic auctions in Europe 2015 and Dalley said the service really only came of age last year.

“Cboe BIDS VWAP-X will take time to establish itself but we think it could be very beneficial for the market over the next few years,” added Dalley.

Eric Stockland, co-head of global electronic trading at BMO Capital Markets, told Markets Markets that the broker has been using Cboe BIDS VWAP-X in the UK since day one. He said: “We are very early adopters of new technology and this is a pretty dramatic new way of matching trades from an old venue.”

Cboe said in a statement in 2024 that early adopters of Cboe BIDS VWAP-X alongside BMO Capital Markets were Bernstein, BNP Paribas, Instinet Europe, Jefferies, KCx and Virtu Financial.

Stockland added: “We have expanded the number of strategies in which we use Cboe’s trajectory cross, which was a big change to increase our adoption. We have some special ways that we trade trajectory crosses, which are different than when we trade in continuous markets, that help us do more volume and minimize market impact.”

He highlighted that trajectory crosses could be even more valuable when markets are very volatile, because prices are really moving around.

US experience

BMO Capital Markets’ clients really like the experience with trajectory crossing in the US, and the reasons that they work in the US are completely portable into the UK, according to Stockland.

For example, many clients use volume weighted average price (VWAP), which represents the average price a security has traded at throughout a given time period, as a trading benchmark. They judge the price achieved in a VWAP algorithm against the average price in the market, i.e tracking error or slippage. Trajectory crosses do a “great job” of minimizing the slippage according to Stockland.

In addition, trajectory crosses help provide high quality execution in other algorithms, such as percentage of volume, by helping avoid adverse selection.

“If both counterparties are willing to trade at an unknown forward price, we are probably both good for each other,” added Stockland.

In trajectory crosses clients who want to achieve an average price, which they consider to be fair, by agreeing to trade at a market price at a forward point in time. Stockland has used the analogy of buying an apartment in a building with 80 floors and 10 apartments on a floor. The buyer and seller may agree to use the average price of the next 10 sales, as they both consider this to be fair. Cboe BIDS VWAP-X uses a five-minute interval VWAP.

In contrast, many broker algorithms follow a volume-based trading schedule, meaning they participate in proportion to anticipated market volume, with a transaction split into many small child orders that are fed progressively into the market.

Trajectory crosses are available on a number of alternative trading systems (ATSs) in the US, such as Purestream and Level, and Stockland expects more competition in this space as it is a growing trend with clients.

Stockland said: “Trajectory crosses are just an ATS construct in the US, but, from a business perspective, we would also like to see exchanges competing to match trades on a trajectory basis. We would certainly be supportive as exchange and ATS competition is healthy.”

European regulatory challenges 

Dalley agreed that there has been a lot of client demand in the US for trajectory crossing, particularly for independent platform providers offering VWAP solutions. Since 2019 Cboe has also been getting demand to run a venue-based trajectory crossing platform in Europe, as the growth of systematic and passive investing has led to customer flows increasingly being transacted via participative and schedule-based algorithms.

There was a strong desire for an independent solution that was operated within a trading venue environment, to help ensure a large liquidity pool and high standards in areas such as surveillance, participant behaviour and the VWAP calculation, according to Dalley.

“That gave us a lot of excitement and led us to pursue the initiative,” said Dalley. “There are many brokers in Europe that have faced challenges to build this type of service because they either lacked the capability to operate as a systematic internaliser, or did not have risk capital, or their technology resources were limited.”

It was key that the service was easy for participants to access so Cboe decided to use the BIDS system, which Dalley said is well-established in Europe and has proven conditional order functionality which lends itself very well to benchmark crossing. Cboe maintains its subsidiary BIDS as an independently managed and operated trading venue and broker-dealer.

Dalley said Cboe has aspirations to offer trajectory crossing in the European Union but faces challenges due to ESMA’s proposed changes to RTS 1, which precludes exchanges – but not brokers – from adopting the negotiated trade waiver for this type of mechanism.

In Cboe BIDS VWAP-X, traders flag conditional indications of interest (IOIs) so they can potentially be matched based on common criteria. The conditional IOIs need to be firmed up in a bilateral trade negotiation, and the interval-VWAP price is calculated by consuming a consolidated market data feed. If that pricing cycle is successfully completed, then the protocol provides the VWAP fill at the end of the interval. Trades will be reported as off-book, on-exchange executions in real-time, allowing them to be centrally cleared through Cboe Europe’s interoperable clearing model.

“We are very pro-competition and choice in trading but we feel ESMA’s recent decision is an unwelcome development in this regard,” said Dalley.  “We need to make sure there is a level playing field for exchanges, venues, brokers and other investment firms to be able to innovate fairly and improve the market for the benefit of end investors.”

Dalley continued that Cboe is currently exploring available options. Trajectory crosses have the support of Norges Bank Investment Management (NBIM), the manager of the Norwegian sovereign wealth fund which had 19.7 trillion krone ($1.8 trillion) in assets at the end of 2024. NBIM voiced its concerns about the ESMA amendment in a letter in February 2025 to EU regulators.

NBIM’s letter said: “We believe that this new amendment, introduced without due process of consultation, has the potential to adversely affect the competitive marketplace for equity transactions in Europe. We suggest that the Commission considers the rationale for and implications of this restriction closely before it is implemented.”

In addition, NBIM said it is concerned that the additional restriction will prove adverse to competition, innovation and European capital market development.

As a major international institutional investor, NBIM said it is active in markets such as the US and UK and benefitted from the financial innovation represented by multilateral percentage of volume (POV) or “trajectory crossing” venues, which have effectively reduced trading costs.

“ESMA’s proposal will effectively deny investors in European markets who (must) trade on European venues access to these enhancements to market quality,” added NBIM.”

As a result, NBIM said European POV trading will only be available through systematic internalisers, liquidity providers and broker crossing networks. European venues will then be disadvantaged in competition with venues in other jurisdictions that may facilitate trading in European shares. NBIM wrote: “Regulation should not disadvantage European firms facing international competition.”

Stockland said: “We would love European exchanges to be able to trajectory crosses. In the US trajectories have the extra utility of matching both on-exchange and off-exchange prints, which are more difficult to access.”