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Bringing Back the Block: Goldman Launches X-Cross

Goldman Pulls Together Liquidity for New 10:30 Cross with the launch of Sigma X-Cross

Goldman Sachs Electronic Trading (GSET) is trying to attract block trades by enhancing liquidity in Sigma X, Goldman’s dark pool, through a point-in-time cross twice a day. The broker-dealer has launched what it calls Sigma X-Cross, a daily cross at 10:30 AM EST, with plans to add an afternoon crossing session down the road. The new cross was announced yesterday.

Some other dark pools have point-in-time crossing. However, X-Cross is different because Goldman has built functionality into its front-end execution management system, RediPlus, that will allow users to pull back any resting orders in the market’s other dark pools to participate in the 10:30 cross. In addition, all of Goldman’s internal liquidity has the opportunity to participate.

RediPlus now includes an alert shortly before the 10:30 cross that will pop up on traders’ screens reading, “The 10:30 Sigma X-Cross will start in 5 minutes.” If the trader wants to participate he or she can pull up a screen of all their orders in the market, and check the ones to be sent into X-Cross.

This functionality will also be available on other execution management and order management systems such as Portware, Flextrade, and Bloomberg. Or a trader can participate in the cross using a FIX message.

Sigma X has seen unprecedented volumes in the last few months, reaching a high of 575 million shares on October 10. However, most of the orders sent to the crossing network are small orders, or child orders, sliced and diced from a large parent order to reduce market impact. “Many of the orders in Sigma X are algorithmic and therefore are shorter orders over a long time horizon,” notes Rishi Nangalia, Head of business development, Goldman Sachs Electronic Trading.

“Block trading has been an elusive goal,” Nangalia says. The team at GSET wanted to create something new and thought, “How can we distinguish ourselves and offer a new product to our customers?” he says. “We want to do large blocks in Sigma X, but we want to be dollar neutral and beta neutral,” he adds.

By taking passive order flow and harnessing it back at a scheduled time, there will be enhanced liquidity in the pool enabling traders to execute larger blocks, explains Dave Johnsen, head of Sigma X product development. “We are pulling in orders from other venues—the tens of millions of passive shares in the market, and harnessing all that back to X-Cross for that instance in time.” He adds, “Clients will have the option to open up order from the parent level to Sigma X, rather than break it down into child orders.”

“There is no information leakage before or after the trade, as all of the executions are made in Sigma X, and this is just considered a new order type,” emphasizes Johnsen.

Why not have more than two crosses a day? “We think we’ll drum up more interest by having two crosses a day, rather than having a cross every hour, “ explains Johnsen.

However, Goldman is also introducing the ability to have on-demand crosses, which it says it can create quickly. If several customers have large portfolios to execute, Goldman can alert its customers about the ad hoc cross. Nangalia says, “If the book is really ripe with order flow or several customers are coming in with large portfolios, we can have a cross on demand in a matter of minutes.”

When executing portfolios in X-Cross, there is functionality built into RediPlus to enter what percentage of buys and sells the trader wants to execute, so that the trader is not left exposed with all his or her buys executed but not the sells. “X-Cross will offer the ability to set net cash and beta adjusted neutrality constraints, controlling exposure and managing execution risk for portfolio trading.

Greg Tusar, Goldman’s Co-head of Electronic Trading, North America, said, “ Amidst what’s been happening in the market, we continue to invest, innovate and put effort into things we find important.”

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