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Jared Dillian
Traders Magazine Online News

Was it Worth It?

In this piece from 10th Man, author Jared Dillian discusses how the ETF revolution is less about ETFs and more about indexing; about how people have come to view stocks less as stocks and more as blobs of stocks.

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April 30, 1999

Small ECN's Next Giant Target Could Bloomberg Tradebook's Indications Tool Hobble Instinet?

By Shailaja Sneelakantan

Also in this article

  • Small ECN's Next Giant Target Could Bloomberg Tradebook's Indications Tool Hobble Instinet?

Bloomberg Tradebook is proudly brandishing its latest tool - a buy-side indications trading tool. Some pros see it as a preemptive strike against so-called sell-side fishing expeditions for buy-side order flow.

For other pros, it means a stunning change in how indications of interest are viewed: no longer a monopolistic opportunity for market makers, but executable orders matched by natural institutional customers directly via Tradebook.

Either way, the product launch is a shot across the bow by Bloomberg to close a yawning gap in market share between itself and archrival, Reuters Group's Instinet.

"We are electronically and anonymously matching the naturals, acting as an agency broker instead of as principal on the trade," said Kim Bang, a business manager at Tradebook. "Our philosophy from the beginning is to bring buy-side institutions together and match their large orders."

Bloomberg says the volume of equity trades executed on Tradebook is growing by ten percent monthly. Tradebook's share of Nasdaq volume, however, is still less than one percent, compared with Instinet's 13.6 percent as of February 28, according to the National Association of Securities Dealers' economic-research unit. (Bloomberg disputes these figures, saying its market share is 3.5 percent, based on an average of 35 million shares executed daily.) Like Instinet, most of Tradebook's volume is for Nasdaq trades.

Closing the Gap

Bloomberg thinks its Tradebook indications tool, dubbed Touch, as well as other new bells and whistles, can help it close the gap with Instinet.

Here's one twist: The tool allows buy-side trading desks to advertise self-generated indications of interest (IOIs) over Tradebook. The IOIs can be electronically and anonymously executed by other buy-side traders, with each IOI representing natural buyers and sellers for shares of the stock.

For its part, Instinet said it isn't threatened by Bloomberg.

"We have been bringing institutions together anonymously [as customers] for 30 years," said Terry Mulry, a spokesman for Instinet. "We aren't going to comment any further."

The tool strikes at the heart of many buy-side pros' worst problems: desks inundated with unwanted IOIs transmitted from the sellside (sometimes as a result of information communicated to sales traders by buy-side desks). Some IOIs are advertised by brokers fishing for order flow from the buyside, where the brokers act as principal for the advertised shares.

Other times, buy-side pros say, the sellside will accept an institution's order, turn around and put out an indication to quickly fill the order.

"If I look at the IOIs [posted] on my Bridge [Information Systems] or AutEx screen, my expectation is that the [broker] is out there fishing," said Ray Murray, head of institutional trading at Investment Advisers in Minneapolis. Investment Advisers subscribes to Tradebook. Bridge Information Systems has headquarters in St. Louis, while AutEx is a division of Thomson Financial in Boston.

Bang of Tradebook acknowledges that the new tool could upset some market makers, because it will potentially allow the buyside to more easily find the other side of the trade on an agency basis on Tradebook. "Normally the buyside calls up the broker who puts out the indication," he said.