Despite putting a premium on block trades, the buy-side still lacks the ability to execute in its desired institutional size due to key market structure issues, a report from research consultancy TABB Group has found.
A plethora of alternative venues, including some focused solely on block trading, in addition to block trading initiatives on exchanges has not resulted in the buy-side achieving a consistent level of block execution.
A report, compiled by Sayena Mostowfi, senior analyst for TABB, has concluded that a greater number of industry initiatives, rather than regulation, are required
To increase the ability to buy and sell orders of size, Mostowfi believes the industry must resolve multiple requirements to trade blocks in contemporary equity markets.
Such factors include enabling trusted counterparties to see orders, while maintaining anonymity; sourcing liquidity with transparent venue or broker fees; leveraging quick-matching engines and integrating workflows; and marrying electronic messaging with traditional sales trading.
Although block-focused venues such as Liquidnet and broker crossing pools have increased the ability for buy-side firms to match orders of size anonymously, more can be done to increase this function, Mostowfi said.
“New innovative solutions, not targeted regulation, are needed to address the business model tensions and market complexities,” Mostowfi said.
TABB has estimated that by tweaking current solutions in the market, the share volume of institutional blocks could increase by up to 476 million shares per day, up from current levels of around 284 million shares per day today.