Liquidnet predicts 'golden age' of head trader
Block trading venue Liquidnet is moving
beyond its traditional focus with the development of a commission management
tool to support buy-side firms in what chief operating officer John Kelly calls
the "golden age" of the head trader.
The commission management service is already
in use among buy-side firms in the US that use Liquidnet’s crossing network and
there are plans to roll out the tool in Europe and Asia.
Kelly, who has been in the job for ten
months, believes commission management is front of mind for institutional
investment managers, as trading desks in the current low-volume environment
struggle to balance best execution with managing commission spend across
“The two biggest needs of the buy-side are
best execution and commission management. Our clients wanted a tool they could
use to control costs and maximise investment performance and we saw
this as an area where we could grow our business and strengthen client
relationships,” says Kelly, adding that the role of head trader is increasing
in importance rather than diminishing in response to higher levels of trade
Before his Liquidnet appointment, Kelly
worked alongside former Goldman Sachs president John L. Thornton consulting
private investors and management teams, and has also held a number of posts at
Société Générale, the most recent as COO of the firm’s US investment banking
While Liquidnet might be extending its range
of services, Kelly still expects growth from its core business of supplying
block-crossing opportunities in an ever-increasing number of markets.
One of the most recent countries to open up
to Liquidnet is the Philippines. And according to Kelly, Asia will lead the
world in growth of institutional investment, which he believes will be
reflected in Liquidnet's volumes.
“Emerging markets will show the highest
growth of institutionally managed capital, particularly in the Asia-Pacific
region. This will grow faster than in the US or Europe and offer firms like us
increased opportunities with local asset managers and also those outside Asia
wanting to execute block trades in Asian stocks,” Kelly says.
The COO says the firm will be looking to Europe for growth in 2013, noting that its European operations are currently heavily skewed toward the UK market.
Despite the plethoraof dark trading options
that have emerged in recent years on both sides of the Atlantic, Liquidnet’s
billing as a pool of liquidity free from high-frequency flow means it still stands
out from the crowd, by virtue of its considerably higher average order size,
which sits at approximately 50,000 shares in the US.
Indeed, the firm, which operates in 41
geographic markets, has tried to extend this advantage to exchanges, offering
to team up with bourse to support block crossing for institutional investors.
SIX Swiss Exchange are the only exchange to
have taken up the offer to date, with the SIX Swiss Exchange Liquidnet Service
(SLS) that was launched in July 2011 and
is expanding this year from its Swiss base to include six more European markets
through Liquidnet’s block trading execution platform.
Kelly affirms that the SIX partnership has
shown solid performance, with figures up until 25 October showing the month is
already a record with US$56 million traded, feeding into a three-month rolling
record for the service. The SLS has traded a total of US$227 million in Swiss
names since launching in July 2011, but is targeting growth in other markets. Following
SLS's first UK execution in August, UK names already constituted 35% of traded
volume in October.
Kelly says his firm is in talks with a
number of exchanges to create similar systems.
“By partnering with exchanges, we can help
them achieve their objectives while at the same time bringing more block
liquidity to our buy-side members.
“The proliferation of high-frequency, which
has reduced the average trade size on exchanges, coupled with the flow of
trading volume away from incumbent exchanges onto alternative trading
venues, means that exchanges and regulators are becoming increasingly
interested in how Liquidnet can work with exchanges to help them recapture
block liquidity from their sell-side members,” Kelly says.