SIX Swiss Exchange and Liquidnet, the buy-side block trading market, have signed an agreement allowing SIX Swiss Exchange members and Liquidnet's buy-side participants to execute large block trades with one another in both Swiss and other European equities.
The offering is expected to go live in Q2 2011, with approximately 3,600 international securities available initially covering Switzerland, UK, France, Germany and the Netherlands.
Asset managers trading on Liquidnet will have the option to interact with sell-side liquidity provided by SIX Swiss Exchange members. If they choose to interact, there will be no discernable difference between block orders from buy- or sell-side, all of which are anonymous.
For members of the SIX Swiss Exchange, a new order type will be made available that will provide access to Liquidnet's exclusively buy-side liquidity pool. Upgrades will have to be made to the member's SIX standard trading interface, including a new venue code, a new trade type code and a new order condition for minimum fills, which will enable investors to expose larger blocks without compromising on match sizes. Once the upgrades are completed, members will need to update their clearing and settlement instructions for international securities.
All trades conducted through the link will be based on the mid-point price of the primary exchange, which John Barker, managing director of Liquidnet Europe, says typically results in a price improvement of between five and 20 basis points across markets. “This is an extension of what we already do, which is passively match buy-side orders and then allow them to negotiate amongst themselves. What we are trying to do is create an even larger block pool of liquidity, which is a safe haven for the buy-side.”
“When you use this facility you have the advantage of avoiding the spread and avoiding market impact, which is how price improvement will be delivered to the end client,” added Christian Katz, CEO of SIX Swiss Exchange. “Having access to this additional liquidity will greatly simplify and accelerate our members' trading activities allowing for improved investment returns by simply adopting a strategy of directing more order flow to this block trading pool.”
He notes that Switzerland has one of the highest average trade sizes in Europe making it a good partner for the block trading venue, adding, “Our lit market is in the top three highest average trade size venues of any exchange or MTF. We have extremely deep liquidity on our market, particularly compared to that of our competitors, which tend to trade Swiss stocks on wider spreads and much lower market depth.”
Individual aspects in the course of the implementation of the service will require regulatory approval, which both parties expect to get in due course.
Since 2009 Liquidnet has offered its Supernatural service to users, which allows them to route against more conventional dark pool orders that are typically retail-sized.