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June 18, 2008

It's Gray Out There

By Nina Mehta

"It wouldn't be an IOI," Filipski says. "It would be a message sent when we already know a sellside engine is active in a name." Filipski acknowledges that the firm is wrestling with this issue: "There could be a bit of information give-up when traders try to attract an order that meets the [bigger] minimums," he says. BlockCross's minimum size for large caps in the confirmation mode, in which customers negotiate for size but not price, is 100,000 shares. For small caps, it's 5,000.

If Pulse goes down this road, it would put in place strict rules around the order interaction. "The information would go only to engines," Filipski says. "And we would expect an extremely high rate for brokers' delivery of orders, perhaps 90 percent or higher." Buyside traders would also have full control over the type of flow they interact with.

Whit Conary, president of Level ATS, is also weighing new ways to let customers solicit liquidity. Level currently does not send out indications or pull any into its pool, but it's cautiously pursuing the ability to push out IOIs.

"We may implement the functionality to send out IOIs," Conary says. "But the only way we would consider it is with customers' knowledge and permission. It's their trade information." He points out that having a separate order type for customers who want to indicate out could be a smart way for a dark pool to differentiate between those orders that stay put in the pool and those that travel out. Level, he adds, wouldn't take in indications from third parties.

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