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June 4, 2007

Pulse Revs Up New Matching Engine

By Michael Scotti

Pulse Trading, a small agency brokerage based in Boston, launched a new crossing network late last month. The system, called BlockCross, is designed for large orders and began with 40 buyside accounts.

Pulse's entry into the dark-pool sweepstakes is the latest in what has become a popular trend. At least 30 broker-dealers, including seven agency brokers, now offer their institutional customers anonymous electronic crossing services.

Brokerage sources in electronic trading contacted by Traders Magazine said the new system would have a rough go of it, given the plethora of systems operating in the block-crossing arena today. BlockCross is open to all liquidity providers, but only had buysiders hooked up at its launch.

Still, Mark Enriquez, a managing director and Pulse's chairman, said he thinks the system has good prospects for success. "It's cost-competitive and we have good block trading workflow," said Enriquez, who declined to specify the system's pricing. BlockCross will be priced at 1 cent a share for institutional clients, according to one source. That's lower than the going rate of 2 cents per share from firms such as Liquidnet, ITG's Posit and Pipeline.

The actual design came from two old hands at the electronic trading business: Preston Ford, who used to head up buyside order management system vendor LongView, and Robert Russel, the former chief executive of ITG.

However, analysts say, that liquidity is what will drive a block trading system's success in today's fragmented marketplace, and getting that liquidity will be a major hurdle for any new system. But price might be a factor in attracting liquidity to BlockCross.

"I will give them a shot," said Mark Kuzminskas, director of trading at Robeco Investment Management. "I have a hard time rationalizing 2 cents a share for a dark pool, and the lower commission rate is an attractive option." Kuzminskas said Pulse's one advantage is it already has relationships with clients through its national sales force-something the other systems didn't have out of the gate.

The crossing network has an auto-ex feature and another in which traders can ante up and trade at a size greater than a pre-set minimum. A minimum-size trade, for example, would be 25,000 shares for a stock that trades 2 million shares a day. Each trader gets a score as to his willingness to trade with a contra side, and customers can choose which type of flow they want to trade against: buyside only, full-service broker or agency broker.