Instinet has expanded the remit of its block trading venue in Asia to include a conditional order book in a bid to help users minimise costs and market impact when trading large orders.
Now called BlockMatch Asia, the non-displayed alternative liquidity pool for equities trading consists of a standard dark continuous limit crossing order book, a market on close book offering primary exchange auction closing prices and a new conditional book for the submission and management of conditional orders.
Through the expansion, conditional orders can match at the midpoint price of the primary exchange. This allows them to save up to half of the bid-offer spread, head of liquidity for Asia Pacific at Instinet, Ian Lauder, told The TRADE, which can average around 12 basis points in Hong Kong as opposed to three or four in Europe.
According to Lauder, until BlockMatch there was no centralised offering provided by exchanges in the region to allow participants to minimise their market impact.
“The Hong Kong market is very different in its characteristics compared with the European and US markets, both in terms of fragmentation but also in terms of the services that the exchange itself provides here. The exchange doesn’t offer any dark or hidden or non-displayed order types in the same manner as you would see exchanges doing in North America or Europe,” he said.
“Clients using the service will be able to manage their impact because it is a dark non-displayed service pre-trade while also entering large size orders and executing every part of it at the midpoint of the primary exchange. Saving six basis points becomes quite significant and meaningful to the buy-side.”
Instinet will go live with electronic conditional orders in Hong Kong listed securities first with plans to add block manual blotter scraping capabilities, and later via its Newport execution management system (EMS).
The firm then plans to extend the securities coverage to include other Asia Pacific markets with plans to add its BlockCross ATS graphical user interface (GUI) into the region by the end of the year, with software that will allow blotter scraping and which has the option to be integrated into buy-side EMSs.
“We see BlockMatch fitting in with asset management workflow especially when we have BlockCross. If they have got a large order that they want to trade, we expect to see them try conditional orders first to control cost of trading. If they don’t get a hit with us they can leave it in the conditional order book while they look to execute another way,” said Stuart Knowling, chief executive officer of Instinet Pacific.
“The underlying technology is the tech that we’ve had elsewhere globally so we’re leveraging that. BlockMatch is the technology we use in Europe for the ATS. BlockCross is the blotter scraping technology that has been fully integrated in Canada and US and Europe. They’re not new tools to Instinet. We’ve customised them using existing elements and adding a local spin on it.”
Alongside the addition of a conditional order book to the venue, Instinet is introducing capabilities for what’s referred to as tiering in the US – counterparty selection – allowing clients to be more specific about the kind of flow they want to interact with.
“The Hong Kong primary exchange order book would look very different to what you would see in Europe in terms of order type so market impact is really important and therefore the explicit and implicit cost savings are very relevant in HK client markets as we know there’s a high cost of trade,” added Lauder.
“If you think about conditional orders the ethos is that you can submit large order to a venue. So if you’re able to do that where you can execute in large size at the midpoint in a market where the spreads are very wide and you can do that in a way that minimises market impact that is very attractive to the buy-side.”