Dark pools give us something to talk about when they release volume figures. On Monday, BIDS Trading L.P., an alternative trading system (ATS) focusing on U.S. block equity trading, announced it had executed more than 20 million shares in daily volume twice last week. BIDS Trading operates BIDS ATS, an anonymous trading system launched in the spring of 2007 by a consortium of major brokers. Even though the nascent block-crossing venue has plenty of competitors in the ATS space including Liquidnet, ITG POSIT, NYFIX Millennium and Pipeline Trading, BIDS appears to be building momentum right out of the gate because of the liquidity pools and customer bases of its strategic partners."This is a significant milestone for us, and one that we are pleased to reach in such a short amount of time," said Tim Mahoney, CEO of BIDS Trading in the release. Mahoney attributed the growth in volume to "overwhelming industry support right out of the gate."
In March, six new firms, Bank of America, Bear Stearns, Credit Suisse, Deutsche Bank, JP Morgan and Knight Capital Group joined the original consortium comprised of Citi, Goldman Sachs, Lehman Brothers, Merrill Lynch, Morgan Stanley and UBS, bringing the total number of investors to twelve.
On the other hand, some of the third party ATSs took years to develop significant and sustainable volumes so BIDS still has to catching up to do. On May 1st NYFIX Millennium had a daily record of 82 million shares, and averaged about 51 million shares in April. Liquidnet, the buy-side only block-crossing marketplace, broke a single-day record of 90.8 million shares in late April. For the first half of 2007, Liquidnet is averaging 56 million shares a day, according to a spokesman. (A quarterly announcement will go out next week with more details.)
To solve the solve the paradox of needing to find a trading counterparty without revealing information about the order, BIDS lets the trader control the amount of information that is disclosed about the order using "various customizable tools," according to the release. Traders can choose to auto-execute or negotiate - which is a blend of Pipeline vs. Liquidnet, respectively. Traders can set their minimum block size to protect their order and even filter out counterparties based on past trading behavior. Again this seems to address features found in existing systems. For example, Pipeline builds minimum order sizes based on the stock's market cap and Liquidnet expels members that are suspected of fishing for information. BIDS is open to all sell-side firms and their sponsored buy-side clients as well as algorithms, hedge funds and program traders, countering the exclusivity of Liquidnet's institutional match which is closed to sell-side firms.
Meanwhile, competition for block trading will be heating up soon as two major exchanges both expand and enter the dark pool arena. Nasdaq is due to launch a continuous block cross later this year, while NYSE Euronext is in the process of testing NYSE MatchPoint, an intra-day crossing network for portfolios or lists of stocks based on a benchmark reference price.Even though the nascent block-crossing venue has plenty of competitors in the ATS space including Liquidnet, ITG POSIT, NYFIX Millennium and Pipeline Trading, BIDS appears to be building momentum right out of the gate because of the liquidity pools and customer bases of its strategic partners. 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