Despite the assumption that bank ATS’ would leverage their franchise liquidity and create a good supply of unique block liquidity, agency crossing networks have remained the most unique source, even when used in conjunction with the conditional orders rather than a blotter, writes Hitesh Mittal, founder and chief executive, BestEx Research. 
Even though institutional traders looking to execute block trades have shifted from using blotter scrapping networks to liquidity seeking algorithms, they still prefer block trades over lots of tiny trades to reduce information leakage. To respond to the need to provide block liquidity to institutional traders, most ATS’ now offer conditional orders which allow the algorithms to seek liquidity at parent order level simultaneously with multiple ATS’.
Using conditional orders, as most algorithms provide liquidity in multiple ATS’, the liquidity is no longer unique in most ATS’ – what you can get in ATS A is typically also available in ATS B. It also leads to race conditions, if you send conditional orders to multiple ATS’, the same contra may be present in multiple ATS’ and you may receive several simultaneous “invitations” to access that liquidity. We recently published a research paper that provides empirical insights into competitive dynamics on ATS’ while using conditional orders.
One key insight is the uniqueness of block liquidity. When we place conditional orders for more than 5,000 shares (*block trades) across multiple ATS’, we observe that 71% of the time, we do not receive simultaneous invites. This indicates that the ATS sending the invitation in those cases is providing unique liquidity. This finding offers a valuable opportunity to analyse which ATS’ truly deliver unique liquidity for block trades. Importantly, our analysis includes only samples where conditional orders are sent to these ATS’ simultaneously, ensuring a level playing field.
Bank ATS’ pretty much dominate the volume these days. Five bank ATS’ account for 45% of the overall volume. Among bank ATS’, UBS’s UBSA has the largest share, representing 17% of the overall volume.
Figure 1. Overall ATS market share based on total shares traded (all NMS stocks) in Q3 2024. Source: FINRA
One would think that bank ATS’ would leverage their franchise liquidity, whether it is from their algorithms or trading desks, and create a good supply of unique block liquidity. But surprisingly, that is not what we find. When it comes to unique block liquidity – executions greater than 5000 shares – we still find that good old agency crossing networks remain the most unique source of block liquidity even when used in conjunction with the conditional orders rather than a blotter.
Figure 2. Percent of unique liquidity from each venue based on transaction size > 5000 shares (*block trades). Source: BestEx Research
Among the agency pools, BIDS stood out as the leader in unique liquidity, followed by Liquidnet (LIUH), Instinet’s BlockCross (BLKX), Virtu’s POSIT (ITGI), and Purestream (STRM).
Request access to the full research paper for more observations.
*In the research paper we define block trades as all transactions above 5000 shares.