Aiming to quell the buy side’s concerns about lack of transparency and liquidity control, Fidelity Capital Markets has created a new execution venue focusing on block trades, called BLOX (Block Liquidity Opportunity Cross), an extension of the company’s alternative trading system, CrossStream.
High fragmentation and low volumes in the equities markets have upped the stakes for buy-side traders who increasingly want to execute block trades to improve execution quality, says John Donahue, SVP, head of equity trading at Fidelity Capital Markets.
Donahue says BLOX, which has already been tested by 10-15 Fidelity clients, meets the needs of traders who are searching for venues that are both safe and can offer unique liquidity. Many of Fidelity’s institutional clients have also been clamoring for better workflow for conditional interaction, he explains.
Through Fidelity’s ATS, CrossStream, BLOX anonymously matches Fidelity clients’ orders against the diverse order flow of Fidelity’s brokerage businesses, without publishing bids and offers and before clients’ orders are routed to the market. All executions occur at midpoint, which provides price improvement for trades.
The venue offers institutional investors the ability to interact with orders from Fidelity’s retail brokerage business, which trades around 535 million shares on average per day. Around 34 percent of the shares coming from the retail brokerage business are considered to be of block size.
For individual investors, Fidelity’s routing provides access to institutional liquidity aimed at gaining price and liquidity improvement. Bringing together these two sets of investors provides a select marketplace focused on a safe environment and best execution for both parties of a trade, according to Fidelity.
While admittedly adding to the market fragmentation, Donahue says BLOX offers Fidelity's clients execution quality and ultimately improves their trading experience.
Fidelity is selectively inviting buy-side clients to access BLOX in a bid to safeguard the venue’s integrity, Donahue adds.