Agency brokerage and technology provider Instinet has launched Instinet Canada Cross (ICX), a non-displayed alternative trading system (ATS) for Toronto Stock Exchange-listed securities. ICX consists of two separate block-focused dark pools – VWAP Cross and BLX – powered by the firm's proprietary technology.
ICX BLX is designed to be an algo-friendly dark pool that seeks to build block trades by accumulating orders until a variable volume threshold is reached. Available in the US since November 2009, BLX was created specifically to increase trade size.
“Average trade size has gone down as the market has become more electronic and people are employing algos a lot more, breaking up the orders,” said Jonathan Kellner, president of Americas, Instinet. “This makes it challenging to find the other side of your trade. BLX tries to aggregate some of those smaller trades and build a block. Orders from different algos can be aggregated together to create that block. “
In November 2010, the Canadian Securities Administrators and the Investment Industry Regulatory Organization of Canada proposed that passive orders for less than a minimum size should not be exempt from pre-trade transparency. The proposal has yet to be approved, but Instinet expects it will have limited impact on its block-focused offering. ICX BLX operates a system under which, if a security trades more than 9 million shares a day, the platform requires 5,000 shares to trigger a match.
“We're trying to bring back the block in terms of creating size without market impact,” said Peter Coffey, managing director at ICX. “With this in mind, BLX takes account of regulatory moves towards volume thresholds.”
The BLX model also includes several built-in anti-gaming features, such as volume triggers and a mid-point pricing window, to prevent the system from being pinged by information-seeking traders.
ICX's VWAP Cross runs each day at 09.15 ET. Designed to appeal to market participants using volume-weighted average price (VWAP) algo trading strategies, the platform locks in matches at the specified match time, with executions priced and printed after the market close once the stock's volume weighted average price has been determined using the day's consolidated market data feeds from all visible Canadian markets. The VWAP cross supports market orders, minimum fills and cash constraints on baskets.
Dark liquidity has been an active topic in Canada in recent months. Canadian ATS operator Alpha Group recently received approval to launch its own dark pool, IntraSpread, which is expected to launch early next month. Several other firms, including Goldman Sachs, are also understood to be working on their own Canadian dark offerings.