Liquidnet, the block-trading network for buy-side institutions, is on target to post a year-on-year increase of double-digit growth in total principal traded for EMEA in 2008, according to John Barker, managing director, Liquidnet Europe.
“Last year, Liquidnet reported total traded volumes in excess of £33bn, which is the equivalent liquidity of $268m per trading day. This year our figures to date are even stronger, despite the dramatic fall in equity prices,” said Barker. “We’re very pleased with this performance, which shows our business is holding up well in a difficult climate.”
Extreme market circumstances in October and November have resulted in a number of changes to clients’ execution strategies and negatively impacted Liquidnet’s average execution size, Barker added.
“During periods of volatility, it’s logical that buy-side firms should be more reluctant to put the full block in a single pool. We’re seeing a slight growth in the number of executions but a lower execution size, resulting in a fall in principal traded between October and November,” he said. “Added to that, I think the whole community is seeing less active order flow as we reach the traditional end-of-year slowdown. Whether you’re ahead of or behind your benchmark for the year, you need a pretty good incentive to go into the market right now.”
The average order execution size on Liquidnet in Europe for the third quarter 2008 was £707,000. Barker acknowledges that the need to get in and out of the market quickly in recent months has altered client behaviour, but asserts that Liquidnet’s model – client blotters are swept for opportunities to match block trades against those of other members – is well-suited to this.
“Our users have the ability to work their orders in multiple ways without risk. If a trader with a £10m order sends out £1m to a broker, we will automatically have access to the other £9m. But if the broker can offer more than the £1m the trader can immediately take it out of Liquidnet to take advantage of the broker’s offer,” he said.
To further differentiate itself in 2009, Liquidnet plans to expand its product offering with new services for its European and Asian clients. “We want to provide clients with a truly global institutional marketplace, with more liquidity for our Members around the world,” said Barker. “There are a number of products we're close to delivering in Europe, subject to regulatory approval.”
Liquidnet H2O, which was launched in the US in 2005, allows market-bound flow from ‘streaming liquidity partners’ to match with orders from Liquidnet’s buy-side members. The inclusion of Citi’s LAVA Trading in August 2008
and NYSE Euronext in November 2008 increased H2O’s number of liquidity partners to 26 brokers, exchanges and electronic communications networks.
“We are excited about 2009,” Barker added. “We will continue our progress in providing the global institutional marketplace to the buy side”.