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Elaine Wah

Modern Markets, Modern Metrics - A Blog By IEX

In this blog by IEX's Elaine Wah, the newest public exchange looks to refute public claims that the metrics it uses are designed to inflate its own volume numbers and mislead people.

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December 14, 2007

ITG and Liquidnet in a Horse Race

By MIchael Scotti

As of the end of June, ITG Posit and Liquidnet were running neck and neck in the electronic block trading space, according to a recent research note by Richard Repetto, an analyst at Sandler O'Neill + Partners. Liquidnet executed 54.5 million shares a day in the second quarter in blocks, outdistancing ITG Posit by about 1 million shares a day in that period, Repetto wrote.

The industry is awaiting ITG's third quarter block crossing numbers, which haven't been released as of yet, but the report noted that Liquidnet saw its block trading increase to 60 million shares a day in the third quarter. The report breaks down ITG's trading volume: Out of the 191 million shares a day that ITG executed in the first half of 2007, about 53.3 million shares were done in its various block trading systems, according to the latest data available.

Pipeline Trading, also covered in the note, is the third firm that has found a place in the electronic block trading space. Pipeline executed about 31 million shares a day in the second quarter, with an average trade size of about 42,000 shares. About 70 percent of the system's volume comes from the buyside. Pipeline, however, saw its volume shrink to about 24 million shares a day in the third quarter. The lower volume is a result of Pipeline cutting off broker-sponsored algorithms from sweeping its book.

The report also noted that buyside-to-buyside systems will best be able to keep their premium pricing of 2 cents a share. Also, the number of new broker-sponsored block trading systems will need "to gain the full confidence of the buyside" to become viable alternatives to ITG, Liquidnet and Pipeline, which have successfully cultivated the trust of clients, Repetto wrote.