When it was launched in June 2004, Banc of America Securities' (BAS) Premier Block Trading (PBT) platform was hailed as "redefining block trading." PBT, part of BAS' Electronic Trading Services (ETS) unit, provides anonymous, real-time electronic execution of orders of up to $20 million in value on more than 1,000 stocks. While there are other electronic block trading services, PBT is unique in that the platform uses algorithms to commit BAS' capital automatically to help clients complete transactions and keep them up to date on BAS' risk profile in the relevant security.
Capital commitment always has been a hallmark of full-service voice brokerages. The decision on whether or not to risk the broker's own capital to help a client complete a transaction traditionally has been in the hands of a trader in negotiations with a client with whom the trader had some kind of personal relationship. To propose automating this activity was quite revolutionary.
A revolution usually has followers. However, BAS' experiment has not been mimicked anywhere on the Street, and buy-side traders interviewed by Advanced Trading seem to be noncommittal about the concept.
"We've used PBT, but it does not represent a significant portion of our volume," says Bill Stephenson, vice president and director of trading at Franklin Templeton Investments, which manages about $250 billion in equities. "I can often get a better price calling the block desk - they know who I am and what I want to do. You would only use [PBT] when you need anonymity and capital, and you want to pay a little extra for both."
Stephenson says, however, that PBT would be advantageous for a small client that normally wouldn't get the attention of a busy trader. In this way, PBT could serve BAS as a tool for gaining new clients with minimal manpower.
Pete Forlenza, head of cash equities at BAS, acknowledges that the platform is not ideal for the large fund trying to trade large volume in liquid securities. Even though PBT started out trying to reach that market, the platform still is experiencing growing pains and is "morphing" into a price-discovery tool for those traders, Forlenza suggests.
"There is a real need around liquidity and anonymity in mid and small caps, and we are spending a lot of resources trying to solve that," Forlenza says. "We started with just the Russell 1000 - we now trade about 1,400 stocks, and, as you get farther down into the smaller capitalization stocks, that is where there is need for both speed and anonymity. That is not what we made the product for originally," he adds.