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January 1, 1998

POSIT: Building Liquidity With Foreign Partners

By Staff Reports

Also in this article

  • POSIT: Building Liquidity With Foreign Partners

POSIT, the Portfolio System for Institutional Trading, wanted to hit the international ground running. The electronic auction, run by New York-based ITG, said strong partners in global markets get results, attract major clients and build liquidity.

POSIT was jointly launched in 1987 by the Los Angeles-based third-market broker dealer Jefferies & Company, and BARRA, a California software and investment research firm. Jefferies holds an 80 percent share in ITG. The system, originally only accessible by institutions, came a long way like Instinet crossing single orders or portfolios twice daily. Broker dealers were first allowed to use POSIT in 1995.

Orders continue to be placed using a desktop computer, a modem and special software. In 1994, ITG, a registered broker dealer, went public on Nasdaq.

POSIT performs five daily crosses on listed and Nasdaq stocks in the U.S. at 10 a.m., 11:30 a.m., 12:30 p.m., 1:30 p.m. and 3 p.m., (EST). Crosses are anonymous, therefore the trade has no market impact, experts say, and it occurs at a price between the bid and asked spread.

At the moment, POSIT has roughly 525 customers in the U.S., including 350 institutions and 175 broker dealers. POSIT trades an average of 15 million shares daily in U.S. stocks during its five crossing sessions. That volume does not include residual trades.

POSIT has an interface with the ITG trading desk. Therefore, residuals may be traded upstairs by ITG sales traders on an agency basis.

Processing

On the processing side, POSIT has electronic links to Brass, the widely-used Nasdaq sellside order-management system, Bridge IOE, and ESI, the executing and clearing broker for Bloomberg Tradebook.

POSIT has a reputation for technology. ITG's high-end QuantEX workstation is used by about 100 customers for analysis, order routing and trade management for execution, a long-short strategy or perform VWAP trading (by volume weighted average price).

Mike Newmark, senior vice president of marketing at POSIT, says that trades on POSIT result in a match about 30 percent of the time on Standard & Poor's 500 stocks. For less active small-cap stocks, seven or eight percent of trades match. Getting a match in a thinly-traded stock between a wide spread can result in large cost savings, Newmark noted. There is no charge unless the customer gets an execution. Software and training are free.

Here's a peek at what's happening for POSIT in the global marketplace.

AustraliaAustralian POSITwas originally licensed to ITG's partner, Australian broker dealer Burdett, Buckeridge and Young (BBY). When ITG purchased an equity stake last summer, ITG and BBY formed their jointly-owned company, ITG Australia, which now runs Australian POSIT. There are morning and afternoon crossing sessions and brokers trade residuals. The system is similar to the POSIT system in the U.S.

Australia has one national stock exchange, the electronic-based Australian Stock Exchange (ASX). With more than 1,100 issues listed on the ASX and foreign interest increasing, observers say that Australian POSIT allows institutions and brokers to trade more cost-effectively.

Australian POSIT works with lists of stocks, as well as with single stocks. But some consider lists to be the most efficient use of the technology.