February 04, 2013

Bank of America Merrill Lynch launched a new global platform Instinct Natural, aimed at increasing the chances to execute block trades for institutional clients by utilizing its dark pool.

Instinct Natural is an enhancement to BofA Merrill's alternative trading system, Instinct X, according to today’s announcement. Instinct Natural will enable buy side traders to place contingent orders into the ATS while they are waiting for a block match from across BofA Merrill’s trading floor. The idea it to provide one pipe for all equity order flow, that will pull in liquidity from the firm’s diverse client base.

“We want to make it easier for our clients to find liquidity so we’ve built a central platform where natural flow can interact,” explained Jason D. Crosby, global head of portfolio sales and head of Americas institutional execution services sales, in today’s release. “With Instinct Natural, clients can tap the vast, uncorrelated, natural order flow that comes through our firm. We expect this will quickly become the place to go for size and price improvement.”

Instinct Natural allows the client to interact with liquidity from institutional and private clients trading with BofA Merrill’s high-touch, electronic, ETF and equity derivative desks. It works by having the buy-side trader rest conditional placements in Instinct X and await an invitation to firm up. BofA Merrill maintains that as clients become more willing to rest longer in Instinct Natural they’ll find natural crosses with price and size improvement and minimal market impact.

The move by BofA Merrill is the latest in a series of efforts by brokers to help institutional clients increase opportunities for block trading without moving the market and leaking information.

[For more on other block trading systems, State Street to Acquire Pulse Trading System ]

“They’re all trying to figure out how do we facilitate this block trading conundrum and are trying to come up with innovative ways of doing this,” commented Sang Lee, managing partner at market researcher Aite Group in Boston. For instance, Credit Suisse has a system called BlockFinder, notes Lee. Liquidnet operates the largest buy-side institutional block-trading network, while BIDS Trading operates a dark pool to gather block-size liquidity. State Street acquired PulseTrading’s blotter scraping and block crossing technologies in September of 2011.

To access Instinct Natural, clients can enter conditional placements through BofA Merrill’s algorithms, directly via the FIX Protocol or by instructing their cash trader to direct conditional placements to the platform. According to the release, Instinct Natural will not be linking into client order management systems, suggesting that it won’t sweep their order blotters. Instead the platform is designed to give the client total control over their interaction with the platform, stated BofA Merrill in the release.

“We’re leveraging this superior technology and the confidence our clients place in us to increase their crossing opportunities,” stated Scott Bacigalupo, Americas head of cash equity sales and trading execution in the announcement. “We believe we can better connect true fundamental investors looking to buy and sell large blocks of stock.”

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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 ...