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September 1, 2011

BIDS Hits New Highs

By James Armstrong

BIDS Trading, the ATS operator launched by a collection of sellside firms, continued its dramatic growth, announcing new trading records last month.

On Aug. 4, BIDS saw volume hit 136 million shares-its fifth day with more than 100 million shares traded since the dark pool first passed that milestone on July 21.

And that was before the market's rollercoaster ride during the week of Aug. 8-12. Average daily volume topped 100 million shares that week, peaking on Aug. 9 at 152 million shares traded on BIDS.

Tim Mahoney

Average daily volume in July was 72 million shares, up from 65 million in June.

Though BIDS doesn't expect too many more weeks this year like the beginning of August, the ATS feels it is poised for long-term growth.

"We're still early on in the development phase," said Tim Mahoney, chief executive officer of BIDS. "Our successful competitors might have 500-plus buyside clients connected. We built our network slightly differently."

BIDS, which launched in 2007, began providing block liquidity only for the sellside, starting with the firms that invested in it: Bank of America Merrill Lynch, Barclays, Citi, Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan Chase, Knight, Lehman Bros., Morgan Stanley and UBS. (NYSE Euronext is also a partner in the joint venture.)

The ATS later added buyside liquidity, and BIDS now boasts more than 120 buyside clients. Mahoney said he wants to triple that number.

"We need to go out and sign up new buyside users," Mahoney said. "The more diversified the base of users is, the more likely you are to get matches."

Though BIDS is dedicated to block trading, it does not put limits on how large or small a block can be. Mahoney said customers can choose to trade in whatever increments they like, whether 100 shares or 50,000 shares.

"Our underlying assumption is, the buyside trader should have tools that are flexible enough to let them trade however they need to under the circumstances," Mahoney said. "By giving them flexibility, we've created a very buyside-friendly venue."

According to numbers from Rosenblatt Securities, BIDS ranks in the middle of major dark pools in terms of volume, still smaller than Credit Suisse CrossFinder and Goldman Sachs Sigma X, but larger than UBS ATS and ConvergEx Millennium.

The average trade size on BIDS was 284 shares in June, according to Rosenblatt. That might not seem like much when compared to trades on Liquidnet Negotiated, a block crossing system whose average trade size was more than 48,000 shares in June.

Still, trade sizes on BIDS are close to those on many of its competitors. CrossFinder had an average trade size of 188 shares in June, and trades on GS Sigma X had an average size of 318 shares.

While order sizes on BIDS might not be especially large, the dark pool offers a different advantage to users by providing for conditional orders, said Justin Schack, managing director for market structure at Rosenblatt.

"That's something that's relatively unique, in that you can have your interest in BIDS and then also have that same interest represented in other venues," Schack said.

Conditional orders are particularly attractive to institutional investors, but Schack said some of BIDS's growth is probably attributable just to the fact that it is now able to offer more liquidity, which in turn attracts more trades.

"They've gotten more people to connect, and that tends to have a compounding effect," Schack said.

 

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