Harborside+, a hybrid-equity-trading system, is going after large block traders who desire anonymous matching and execution.
Targeting buy-side and sell-side firms that desire an anonymous mechanism for executing large block trades, Thomson Financial, Jefferies & Co. and a group of investors have teamed up to launch Harborside+ - a hybrid-trading system that matches indications of interest electronically but performs executions manually via a trading desk. Scheduled to officially launch in September, Harborside+ expects to compete with fully electronic matching systems, such as Liquidnet and Investment Technology Group's Posit.
Clients of Harborside+ enter indications of interest to buy or sell a stock - at a minimum of 25,000 shares - into the system's matching engine. After the system finds a match at the midpoint of the best bid and offer, a trader at Harborside+'s broker/dealer - Harborside Securities - then phones both the buyer and the seller to tell them a match has been found and to begin a negotiation process. "This really is a hybrid between technology and traditional phone-based trading," says Harborside+ Vice President David Leone. "Once we pre-qualify people with technology and establish a match, that's when we bring people back into the mix, to finish the trading process and help facilitate a negotiation."
Leone says Harborside+ is currently in a pilot mode at roughly 50 firms, with a 60 percent/40 percent split between buy-side and sell-side users, respectively. Those clients, he says, are performing average executions of 70,000 shares.
Leone says the "confidentiality" component of Harborside+ gives users the comfort level they need to enter larger-size orders. "The system is totally anonymous ... . If no matches are established over the course of the day, the IOIs (in the system) would expire and a trader can feel confident that his willingness to buy or sell a stock has not been seen by anybody," says Leone.
Munder Capital, a Birmingham, Mich.-based money-management firm with roughly $35 billion in assets under management, is one of the firms piloting Harborside+. Dennis Fox, director of equity trading at Munder Capital, says the firm's equity traders have been using Harborside+ for the past three months, with an average execution size of 75,000 shares.
Munder's traders use the system by entering IOIs into the Harborside+ matching engine. If a match is found, Fox says, the system alerts Munder electronically and a Harborside Securities trader contacts the firm over the telephone to begin a negotiation centered around the midpoint of the best bid and offer. "At a minimum, I can (then) trade at least 25,000 shares with the person on the other side," says Fox.
Harborside+, he says, is now Munder's "go-to place" for trading illiquid stocks. "That's where I've had the most success with Harborside+," says Fox. "No one has any trouble trading a million shares of a very liquid name. It's when you've got an illiquid stock that you really need that person in between."
Fox says that he posts IOIs by sending either an e-mail or an instant message to the Harborside Securities trading desk. In contrast, he says, one of his colleagues uses a Web-based graphical-user interface to input IOIs into Harborside+.
Clients who want to enter IOIs electronically, says Leone, have a few different options. In addition to the Web-based GUI, a client can also input IOIs through a variety of order-management systems, including Macgregor, Eze Castle, Charles River Development and Decalog. If they don't like either of those options, firms can also enter IOIs via direct-FIX connections supplied by FlexTrade Systems, Triad and Tradeware.
System Name: Harborside+
Projected Launch Date: Sept. 2002
Primary Owners: Thomson Financial, Jefferies & Co., Commonwealth Ventures, Mellon Ventures, Neo Carta Ventures
Target Audience: Buy-side and sell-side firms seeking an anonymous block-trading mechanism
Minimum IOI: 25,000 Shares
Electronic-Access Points: Web-based graphical-user interface, FIX connectivity and API that links to several order-management systems