Agency broker Instinet is planning to make its new BlockMatch dark pool available to European clients by the end of June, according to Richard Balarkas, president and CEO of Instinet Europe. The broker, which is currently using the service internally, registered BlockMatch as a multilateral trading facility (MTF) with the UK Financial Services Authority in early May.
In a bid to boost crossing rates without admitting flow from investment banks’ proprietary trading desks, BlockMatch will allow clients to choose whether or not to display their intentions.
Balarkas said that 100% dark pools that contain only natural liquidity and no prop flow typically achieve crossing rates of between 5% and 7%. “That’s not something that gets people too excited,” he told theTRADEnews.com. “We don’t have, nor do we want, prop traders to artificially boost the crossing rate, so instead we have decided to leave it in the hands of the client. If the client wants to improve their chances of crossing, they can disclose their order.” In the event of an order being disclosed, a firm, ‘hittable’ indication of interest will be sent to other BlockMatch participants.
Pricing for BlockMatch will be structured to benefit clients that reveal their orders but BlockMatch will not employ the so-called taker-maker fee and rebate structures used by MTFs such as Chi-X and Turquoise. “A rebate model is overly complex, so to start with we may simply charge the aggressor,” said Balarkas.
Instinet intends to link BlockMatch to other dark pools, both public crossing networks and brokers’ internal liquidity pools. “We want to be able to get the best results for our clients for their BlockMatch orders just like any other order we handle,” said Balarkas. “This may mean that sitting within BlockMatch alone is not the best thing to do. We want to be able to route BlockMatch orders to other MTFs and to systematic internalisers as well, where they can give us the necessary assurances that the order is going to be treated with the respect that we would accord it within Instinet.”
Balarkas said that while large brokers’ dark pools are incentivised to keep as much flow internally as possible, BlockMatch’s objective is not to maximise the amount of unmatched liquidity it holds or maximise internal crossing rates. “If, in a year’s time, BlockMatch is executing 99% of its business on other venues, but by doing so we’re getting the best results for clients, we have met our objective,” he said.
Admittance into BlockMatch will be at Instinet’s discretion. The company will not allow traders to send small orders into the pool in an attempt to discover prices. To this end, there will be a minimum order size, but it will differ by stock. “In the leading stocks we would expect the minimum order size to be in the region of $0.5 million to $1 million, but we will have to adjust for less-liquid names,” Balarkas explained.