Despite the rapid-fire computerized trading going on in the stock market, institutions would still like to trade large blocks but this is a more complex undertaking because the price on the screen is for a retail size order.
On Tuesday, Citi launched Total Touch Price, an electronic block-pricing tool on the Bloomberg App Portal, enabling buy-side firms to request block pricing details on demand from Citi. Traders can then initiate a trade as part of their integrated workflow through the Bloomberg Professional service.
“It’s about pricing certainty for institutional clients in where they are likely to execute,” said Kevin Russell, managing director, Citi, who oversees global cash trading, in addition to his role as head of trading for the Americas.
In an interview in his office, Russell explained that Citi models what it would cost to trade the most active 2,000 in institutional size. If Citi cannot find the contra side of the trade, then it will commit capital to take on the position. “We are confident in our ability to recycle that risk,” said Russell. The new pricing app builds upon a relationship that Citi already had with Bloomberg. Three years ago Citi released Total Touch, a block electronic execution platform that offers clients the ability to access Citi’s liquidity electronically in over 3,000 names including US stocks, ETFs and equities in Latin America. Total Touch is already integrated with the Bloomberg Execution Management System (EMSX) and its IOI network.
“Citi recognized that integrating its block pricing tool with Bloomberg could help extend its services and tools to clients,” commented Claudio Storelli, global business manager for the Bloomberg App Portal, in the release. “Traders can request block pricing details from Citi on-demand and then initiate trades easily using Bloomberg’s execution management system as part of an integrated user experience.” The Total Touch Price application lets institutional clients “understand the concessions relative to NBBO that Citi will charge to commit capital to facilitate client orders.”
Many Ways to Trade a Block
Block trading has become one of the “thorniest” issues for buy-side traders, according to Tabb Group in its 2014 report on U.S. institutional equity trading.
Many customers utilize block-crossing networks like Liquidnet, POSIT, BIDS, Aqua and BlockCross, which provide size, control, anonymity and integrated workflow. Fifty seven percent of institutions it surveyed used crossing networks, 36 % used agency desks, and 7% used broker capital. Despite all the available block trading methods available, the percentage of block trading has slipped to 12% of share volume in 2013, up 1% from 2012, and down from 16% in 2007.
However, according to Russell, Citi has conversations with its clients every day about trading large order sizes, starting at 25,000 shares up to several millions shares. Their main concern: “What’s the institutional spread for the size they need to trade,” said Russell. "Institutional investors know that the nominal spreads as defined by NBBO do not hold for these larger size trades."
Also, brokers are deploying more technology in their offerings for block trading.
Given all the market structure challenges, Citi utilizes an algorithm known as Azon that seeks to interact with the institutional liquidity in the market. “Citi offers clients a traditional stop which means clients receive an execution at least as good as Citi's indication, with the potential of doing better. While Citi's customized algos often enable clients to access liquidity more efficiently, our capital is there to ensure that execution at least meets the original indications.
The Total Touch Price application lets institutional clients “understand the liquidity concessions that Citi will make,” explains Russell. Through an interactive window, the buy side can play with different sizes and submit their request for quotes.
Citi expects institutional traders to use the Total Touch Price as desktop application on their Bloomberg LaunchPad configuration. “It’s meant to be part of their normal workflow,” said Russell.
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