Liquidnet launches algo suite to reduce block opportunity costs

Liquidnet has launched a suite of algorithms enabling clients to trade blocks without losing out on other trading opportunities.

Liquidnet has launched a suite of algorithms it says will enable clients to trade blocks without losing out on other trading opportunities.

The EMEA Next Gen Algo suite is intended to enable buy-side traders to rest block orders on Liquidnet while also trading other lit and dark venues to minimise the opportunity cost of trading blocks.

Chris Jackson, European head of Liquidnet’s Execution and Quantitative Services Group, said: "Sometimes clients will look to cross in Liquidnet but may not be able to find a match straight away, so they will leave the pool to look for liquidity elsewhere and potentially miss out on other matching opportunities. We want them to be able to continue to access those opportunities while also being able to get working on that order elsewhere.”

With its new algo suite, Liquidnet hopes to minimise the number of clients dropping orders from the pool, as they will still be able to begin working an orders while awaiting matches in Liquidnet. A liquidity seeking algorithm, named Barracuda, can both seek out block trades and opportunistically search for liquidity in other markets, executing when favourable liquidity exists and slowing when liquidity is scarce or unattractive.

The ability to place a block order in one pool while also working on other liquidity opportunities has been adopted by other brokers and venues recently in response to Mifid II, as by providing opportunities for more block trades should help investors mitigate the effects of European dark pool caps due to be introduced in 2018. Turquoise’s Block Liquidity service enables market participants to place a provisional block order in Turquoise while working the order elsewhere, with the ability to recall liquidity should a block opportunity arise.

However, Liquidnet said that its offering is different from other services that have recently launched.

“We're offering a complete tool kit,” said Jackson. “It allows the client to get access to our block trading opportunities while also being able to deploy a range of other tools to trade in both other dark pools and the lit market with a high level of control."

The Next Gen Algo suite has already been used in the US since August 2015, and Liquidnet reported a 61% increase in year-on-year volume driven by algorithmic execution. The EMEA tools are being rolled out now following a pilot period.