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Harborside+ Ups the Ante on Liquidity

Harborside+ reports that liquidity, trading volume and number of buy-and sell-side users has doubled over the last quarter. But, the hybrid equity-trading-system faces a tough fight against Liquidnet, it's main challenger.

In a tough environment where trading volumes are trending lower, Harborside+ -- a hybrid equity-trading system for large block equity indications -- has doubled its available liquidity, trading volume and number of buy- and sell-side participants entering indications of interest (IOIs) since the fourth quarter of last year.

"Volumes are down, it's a tough environment. They're rolling out something a little different and we're giving it a look," says Andy Brooks, vice president and head of equity trading at T.Rowe Price Associates who uses the system along with Liquidnet -- Harborside+'s main competitor. "It (Harborside) hasn't been around as long. They probably each have their advantages," says Brooks.

Harborside+ -- re-launched in September -- blends an electronic matching system, with human intervention. About 300 traders from 100 buy-side firms and 30 brokers are submitting IOIs now. If the system finds a match, a notification is sent to Harborside+'s agency desk, where a trader calls each side to begin the negotiation with the contra-side.

According to Michael Cashel, chief operating officer, there is about $1 billion each day in liquidity available through the system. Despite these claims of growing liquidity, it is difficult to validate the results because to preserve anonymity Harborside+ does not disclose the amount of shares traded or the names of stocks it trades.

Cashel says the system is carrying about 500 indications of interest, and the average trade size is 70,000 shares. Since $31.50 is the average price of an S&P 500 stock, if those three numbers are multiplied together, he contends there is $1 billion each day in liquidity available to institutions through the system. "At the end of December it was about half that," says Cashel who adds, that in the coming months, he hopes to double that liquidity again too.

"Given that they (Harborside+) are sort of a late starter in the electronic- trading market, that's fairly decent," comments Damon Kovelsky, an analyst with Financial Insights. Because Harborside+ is going after the block trades where Liquidnet "is the main challenger, and "Liquidnet is really strong," Kovelsky contends, "they (Harborside+) have their work cut out for them." Kovelsky maintains that for block trading, 25,000 to 70,000 shares is a low size. "Ideally, you want to break six digits, you want 100,000 plus," he contends.

However, one sell-side trader using Harborside+ believes that liquidity has been increasing in the system. "I'm getting more and more hits, the percentage of indications is going up dramatically," says Jay Robinson-Duff III, manager of trading at Frank Russell Securities Inc. "They're finding the other side, they're finding a match on the IOIs that I'm putting in," adds the sell-side trader. While the minimum trade size is good for 25,000 shares, Duff says he's done a couple of hundred thousand shares.

"What this is doing is creating price discovery for a large piece of merchandise," says Duff who enters trades via the Web page and logs-in. Duff says he cannot participate in Liquidnet because it requires firms to use an OMS and it's strictly for buy-sidefirm's instant messaging each other over a secured network. "It is supposed to keep the anonymity to keep the brokers out so that only the money managers will trade between themselves."

Indications can be entered into Harborside+ in a multitude of ways--through a firms' OMS, through a Web-based GUI (developed by Harborside+), direct FIX connections, file uploads or by phone to the Harborside + agency desk. About 60 percent of the indications come in via an OMS, Cashel estimates and he sees that facet growing over time. T. Rowe Price's IOIs are linked to an OMS, says Brooks, who says the firm uses the Merrin/Macgregor OMS. Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio

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