Agency broker Instinet has announced the full launch of BLX, a non-displayed US block equities trading platform that combines continuous execution with point-in-time crossing, which has been in soft launch mode since the end of April.
Instinet has also signed BlockCross, a block matching platform run by Boston-based broker Pulse Trading, as a liquidity partner for BLX. Clients will be able to opt in to send orders to BLX via BlockCross.
While the US dark pool market is crowded – estimates put the number of venues above 40 – BLX aims to fill the gap Instinet perceives between the 300-400-share order sizes achieved by continuous dark trading systems such as Instinet’s own CBX and the 45,000-share executions that take place on negotiated or peer-to-peer block crossing systems such as Liquidnet and Pipeline.
“There is a big window there for meaningful volume that is just not happening,” Jonathan Kellner, president, Americas at Instinet, told theTRADEnews.com.
BLX accepts buy- and sell-side orders on a continuous basis, which are then pooled until a minimum volume threshold is reached for each individual stock, as set by Instinet based on
trading volume. Once the threshold trigger is hit, a 10-second pricing window opens, during which the crossing price is determined by taking a snapshot of the midpoint of the national best bid and offer at random points in time. Once the price is set, the order is filled on a pro-rata basis.
If there is any residual liquidity from the first match, a second match occurs. An indication of cross (IOX) is sent to participants, disclosing only the stock symbol, inviting additional orders inside a three-second window. These are then pooled with the residual orders. The second match has no volume trigger but only executes if the market price is within range of the price set within the window.
Because BLX aggregates smaller orders to create larger executions, the platform is algorithm-friendly, which Kellner argues is unique in the US block-crossing market. “So much flow is in algos these days. A lot of times you may have a block on your desk and the other side is out there, but it’s in algos trading 200, 300 or 400 shares at a time,” he said. “Hopefully BLX can bring these orders in and to some extent we are cleaning up the tape by putting up orders of 4,700 or 7,500 shares.”
The platform recorded an average trade size of 16,813 shares in September.
Instinet argues that BLX’s IOX alerts, volume trigger and mid-point matching help reduce gaming and claims its matches cannot be pinged to expose interest levels.
Kellner adds that the multi-second pricing and matching windows will deter high-frequency players and make it more suitable for institutional order flow.
BLX has had a long soft launch because Instinet wanted to build up liquidity on the platform before the pool’s official introduction. Several hundred clients have so far traded on the platform and the link via BlockCross has been open for around six weeks. “We have a fair amount of experience in launching crossing networks and to be successful you need liquidity,” said Kellner. “If we go out to clients and say, ‘Trade with us, this is a great product,’ but they don’t get anything done when they try, it would die pretty quickly.”
BLX is one of several new initiatives laucnhed this year to facilitate equity block trading in the US. In January, equity trading platform BIDS and the New York Stock Exchange teamed up to form the New York Block Exchange. In February, trading venue Pipeline introduced PowerPlay, a buy-side block execution system.