JP Morgan is the latest broker to refocus its electronic trading to help institutional investors execute more blocks with the introduction of a conditional order type.
The new proposition is similar to the recently launched Block Discovery service on Turquoise, which JP Morgan is also supporting, but will let clients put a conditional parent order into its JPM-X dark pool while also being able to work smaller child slices on other markets and recalling orders when a larger block is matched.
Commenting on the reasoning behind the new service, Brian Pomraning, head of electronic client solution, EMEA at JP Morgan, said: “Over the past few years, the industry has seen order sizes in the dark getting smaller, but this is starting to swing in the other direction and our conditional order types are playing a part in this. Ideally, we want to get to the point where we can significantly reduce our trade count while increasing the average fill size.”
Conditional orders are available as an option within JP Morgan’s AQUA algorithm. The algo will continue to work orders on lit and dark venues as normal while also searching for block liquidity opportunities. If a suitable block is found, it can cancel orders being worked elsewhere to be executed on JPM-X.
Pomraning added, “Aside from conditional orders, we’re also looking at other ways to increase fill sizes for our clients. For example, our dynamic minimum quantity model uses historical and intraday data to determine the optimal size to post in given name and venue.”
Over the past year, brokers have been increasingly focused on new ways to encourage more block trading in their dark pools. For example, Société Générale has launched a service to enable traders to limit displays of their trades to pre-defined counterparties, while Goldman Sachs offers an opt-in service to enable its high-touch desk to intervene in electronic trades when potential block matches are identified.
Though most say they are adapting to demand from institutional investors, the industry is also thought to be preparing for new rules on dark trading in MiFID II. Trades which qualify for the large-in-scale pre-trade transparency waiver will be discounted from caps on dark trading that have been proposed in MiFID II’s first discussion paper. It is thought both brokers and venues are looking to increase the amount of large-in-scale trades they can execute ahead of the introduction of the new rules in 2017 to ensure they do not risk breaching the caps.
“This isn’t a direct response to pending regulations,” said Pomraining, “it’s a reaction to client demand for more block liquidity. But we will be watching what happens in MiFID II and may move our model, which currently has a flat minimum order size for conditional orders, to be linked to the large-in-scale waiver.”
Conditional orders have been available to European clients of JP Morgan for the past month while US users have been trading using them for the past six months. JP Morgan added that initial response from users has been positive.