Asian block crossing growth aided by Flash Boys effect

Record volumes

are being traded in Asia’s buy-side block crossing networks, attributed to local market factors, product growth and favourable publicity. 

Record volumes are being crossed in Asia’s buy-side to buy-side block crossing networks.

April 2014 was the highest month ever for trading at ITG’s Posit Alert Asia Pacific, and included the region’s highest volume trading day of over $115 million crossed.  First quarter volumes were 60% higher than during the last three months of 2013.

“The hype around the ‘Flash Boys’ book added to crossing interest. People felt inclined to trade in blocks because of knowing the kind of people and the type of liquidity they’d be dealing with,” said Ofir Gefen, the head of research and liquidity management, at ITG Asia Pacific.

In other words, buy-siders know that they are trading with similar investment-type people as themselves, rather than high-frequency traders standing in the middle. Users of a crossing network possess that kind of transparency about how the system functions, although they do not know the exact identity of their counterparty.

The first quarter also witnessed all-time highs in APAC being crossed at Liquidnet. The amounts traded in their system rose 12% to US$5.8 billion, beating the previous best quarter of US$5.17 billion, recorded in the second quarter of 2013.

However, there may be other plausible explanations for the growth in crossing networks rather than a knee-jerk reaction to a best seller appearing on shelves in the bookshops.

The block crossing networks have been making progress in rolling out their products in Asia, and that investment is starting to pay off in the form of more business. Liquidnet, for example, has recently been adding staff.

ITG said they have invested heavily in developing their product, which now covers seven markets, having added South Korea in the first quarter.

Therefore a critical mass is being achieved, a sufficient amount of buyers and sellers, which creates a virtuous cycle, attracting even more traders interested in participating

In addition, operationally, the products are becoming more wide-spread. Posit now sits on just over a dozen OMS and EMS platforms. When an opportunity to do a block arises, a message pops up for the trader (without having to log in) and they can make a quick decision.

Another reason for the growth in Asia is that given there exist higher spread markets in certain parts of Asia and so it makes more sense to use a service that achieves a mid- price.

“The markets in Asia have higher spreads and as we have deployed this product in some of the emerging markets here such as Malaysia and Indonesia and markets like Singapore which have higher spreads,” said Gefen. “ There is an appeal to clients to get the mid-point in those markets when executing significant amounts of liquidity.”