Responding to fragmentation in institutional stock trading, Bloomberg LP announced a new service today for U.S. equity traders to harness liquidity present on the Bloomberg trading platforms through a tie-up with BIDS Trading, a U.S. block-trading venue.
The new service, known as Bloomberg Pool or BPool, enables traders to interact with liquidity in all four of Bloomberg’s equity trading platforms and BIDS’ alternative trading system, which will act as BPool’s order matching engine.
“You’re capturing liquidity and you’re optimizing your commission spend,” said Jim White, head of global operations for BPool, which is part of Bloomberg LP in an interview today with Wall Street & Technology. According to White, BPool will provide “one click integrated workflow” with the trading tools available in Bloomberg’s four order and execution management systems. They are: EMSX, a buy side EMS; the firm’s Sell Side EMS/OMS called SSEOMS; Bloomberg AIM, a buy-side OMS, as well as Bloomberg Tradebook, the firm’s agency brokerage business. BPool is “integrated into those trading systems and that the workflow is the same,” he added.
As part of its alliance with BIDS Trading, Bloomberg took an equity stake in BIDS, joining a consortium of over a dozen brokers, market makers and investors that are BIDS' investors. Ray Tierney, chief executive of Bloomberg Tradebook will also join the BIDS board, according to the firm’s release.
The move is significant since this is the first time that the financial information giant is harnessing all the liquidity in its equity execution and order management platforms for its buy-side clients.The executable liquidity on an average daily basis is a little more than 7 percent of US equity volume. “That is the potential size of the liquidity pool if everybody using Bloomberg's equities-trading platforms opted in,” said White.
BPool is a solution to two problems plaguing buy-side clients, which include, “optimizing liquidity and optimizing their commission spend,” said White. With 40 dark pools and 13 lit venues, White said, “It [BPool} helps solve the fragmentation problem, and tries to help our clients trade blocks.” Though firms may start with a 100,000-share order, they end up trading in 100 and 200 share sizes, he noted.
Second, over the past few years, with declining equity trading volumes, commission wallets have shrunk significantly, so buy-side traders are struggling to pay for brokerage services such as research. BPool gives buy-side traders the ability to utilize BIDS Trading’s sponsored access model, which means that buy side traders can choose to allocate their commission dollars to the broker of their choice to pay research bills. BIDS has 27 brokers to choose from in their sponsored access program. “If BPool identifies a potential match, it allows you to select a broker that you want to pay. That’s a unique, differentiating factor of our offering,” emphasized White.
The technology is able to scan the buy-side firm’s resting orders in the trading platforms, but the trader will be alerted when a match is found. One of the goals of BPool is to give the trader more control over their orders, according to White. Because the order type is conditional, when they have routed shares to a broker— who is perhaps working the order in an algorithm— the trader can still allow those shares to match in BPool, through functionality we refer to as “pull and match.”
“This maximizes the liquidity capture for that order,” said White. First, the client gets notified of an opportunity to match in BPool. If the client elects to put a firm order in the match, the system pulls those shares, and then it firms up the order in the matching engine, which is BIDS ATS, said White. “We eliminate the chance of over trading,” said White.
BPool is also customizable so that a trader could choose auto-match for a percentage of their order or quantity of shares. “In that case, they don’t have to respond to an alert,” explained White. “For a trader that is very busy, that’s an opportunity to streamline workflow,” he said. “When you invoke alerts, icons, pop-ups or bells, there’s an opportunity to miss a match,” noted White. "If 9:30 to 10:00 am is a busy time, you might want to set a fair amount of your order on auto match,” advised White. “And then at 10am, you can reduce the order quantity to zero and then you put yourself back with the engagement mode,” he added.
White emphasized that BPool is a service of Bloomberg LP, and that BIDS Trading’s ATS is serving as the order matching engine. For Bloomberg Tradebook clients, BPool is another liquidity venue where Tradebook is looking to execute. On top of that, there’s the liquidity that BIDS has in their pools today, pointed out White.
In terms of letting in sell side firms, Bloomberg decides which sell side firms get opted into BPool. Usually these are niche firms that specialize in sectors such as healthcare. They bring in “unique liquidity, and liquidity that typically would never find its way into a crossing network or dark pool,” said White. “And typically, to participate in the dark, these firms have routed orders to brokers working with dark aggregators and, they have lost control of that order.”
White said that BPool has been operating live for a month, and it’s in beta testing with a subset of clients. Clients need to be enabled to use BPool and need to pick at least one sponsored broker to interact in BPool.
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