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May 31, 2004

Another System For Trading Block Orders

By Peter Chapman

Banc of America Securities (BofA) is launching an anonymous electronic block trading system. Premier Block Trading (PBT) facilitates, anonymously, principal trades between BofA and its clients. The process falls somewhere between that of an electronic crossing network and the blind bidding of a program desk.

"This is a revolutionary idea," says Rob Flatley, who runs BofA's electronic trading services. "We provide two-way quotes for blocks with hit and take functionality."

To use PBT, buyside traders input a stock's ticker and the number of shares they wish to trade. They do not identify themselves nor do they disclose their side of the market. Once BofA receives the indication, it proceeds to quote a bid and an offer every nine seconds continuously between the hours of 10:00 a.m. and 3:30 p.m.

If the buyside trader likes the pricing, he clicks "buy" or "sell" and the trade is completed. BofA takes the other side of the trade. The client's identity is revealed only after the trade is done. Currently, BofA is quoting only the stocks in the Russell 1000. The broker will trade up to $20 million in face value, or 10 percent of the stock's average daily volume, whichever is greater. The system is similar to crossing networks such as POSIT and Liquidnet. However, Flatley says, it will offer 100 percent fill rates. Fill rates on POSIT average about five percent.

The trading process is also similar to blind bidding. With programs, clients-their identities disclosed-submit lists denoting ticker and quantity, but not side. The broker then bids on the portfolio.