Financial information firm Thomson Reuters will operate a block trading service based on its buy- and sell-side messaging platform Autex, but the firm has said it will not compete directly with dark pools or crossing networks.
The Autex service, which links 750 buy-side and 700 sell-side firms, provides indications of interest (IOIs) and advertised trades, and will be the basis for Block Connect, a service that matches buy- and sell-side liquidity to execute in a venue regulated as a broker crossing network.
This service will facilitate block trading in US equities with plans to extend globally in the future.
Trades will be reported through a Thomson Reuters agreement with a broker-dealer and buy-side firms will remain anonymous until a trade has executed.
Rob Hegarty, global head of equities for Thomson Reuters, said the venue would meet the buy-side’s need for anonymity when trading in size and give the sell-side access to Autex’s pool of asset managers active on the service. He said the venue would help participants deal with the increasing fragmentation in the US equities market.
“It’s become more and more difficult for buy-side firms to find block liquidity and for sell-side firms to accommodate them,” Hegarty told theTRADEnews.com.
“This service leverages what we have in place already – a large, deep and broad network of FIX messages, IOIs and advertised trades – and lets the community act on information to trade in large blocks.”
The firm hopes the service will encourage brokers to post their full block orders rather than breaking them up across multiple venues.
According to Hegarty, this constitutes the biggest effort by Thomson Reuters to challenge for block trading liquidity. He said the venue would not compete directly with established buy-side block crossing networks, such as Liquidnet, or leading broker dark pools, such as Credit Suisse’s CrossFinder.
A key differentiator, he said, was the ability for buy-side firms to connect with broker counterparts after a trade – in effect using the venue for price discovery and to identify specific brokers that provide consistent block liquidity by sector or stock.
“This is a very different model [compared to block crossing platforms and broker dark pools]. This is not us competing directly for that sort of business,” he said, in part because, “we allow a buy-side firm to trade outside of Block Connect after the initial introduction and execution is done.”
He said the platform would be open to all buy- and sell-side firms and added that mid-tier brokers would be particularly suited as they cannot leverage the internal pools and buy-side access that larger sell-side firms use to execute blocks.
To further attract buy-side activity, Thomson Reuters has linked up with execution and order management system providers, including FlexTrade, Fidessa and Eze Software, to access to Block Connect directly.
But, despite the number of firms active on the Autex network, Thomson Reuters may face significant barriers in attracting liquidity on the platform due to the number of established block crossing platforms and broker dark pools.
Rich Ripetto, principal, equity research for Sandler O’Neill and Partners, said even with the established messaging activity concentrated in Thomson Reuters, converting this to block liquidity would remain a major barrier to success in such a crowded market.
“Thomson Reuters will have a small advantage with its Autex message network but the block trading space will be hard to penetrate with the amount of dark pools and crossing networks,” he told theTRADEnews.com.
“It’s going to be a huge challenge and an uphill battle for any new entrant to gain significant liquidity and challenge incumbent entities to help the buy-side trade in size,” he said.