ALGO UPDATE: Liquidnet Expands Targeted Invitations in Europe

Traders Magazine Online News, August 23, 2017

Shanny Basar

Liquidnet, the block trading trading network, is including targeted invitations in equities algorithms in Europe as new regulations will impact market structure in the region and make it harder to find liquidity.

Chris Jackson, Liquidnet EMEA head of execution & Quantitative Services Group, told Markets Media: “One client said 20% of their order flow now comes from actively soliciting order flow from portfolio managers based on liquidity they see in the market. Targeted invitations have done an amazing job in generating new interest.”

Targeted invitations help the buyside find additional block liquidity by using data analysis to allow qualifying members to send anonymous actionable invitations to others who have recently traded or shown interest in a certain security. Unlike indications of interest, targeted invitations are firm and committed orders and are available only to members who fit the eligibility criteria. Targeted invitations are also only sent to three or four clients to minimize information leakage, while IOIs can be sent to thousands.

Liquidnet rolled out targeted invitations in the US and Asia-Pacific last year after launching in Europe in 2015. The multi-asset class technology was also first used for equities in 2015 and then expanded into fixed income in 2016.

Jackson continued that targeted invitations have generated $1.9bn of order flow in Europe in the first half of this year, with an average trade size of $2.3m. Average liquidity for targeted invitations has been 38% of daily volume and the largest trade has been $156m on each side.

Targeted invitations have been added to equity algos in Europe to make it easier and more efficient for asset managers to integrate them into their workflow and access liquidity in Liquidnet’s natural pool, external dark pools and the public market. The new functionality will be rolled out globally this year.

“The algos have a filter to only send targeted invitations for large illiquid orders. This is a block trading solution for MiFID II so the quality needs to remain high,” added Jackson. “We have three more new solutions in the hopper to help investors in their search for block liquidity under MiFID II.”

MiFID II, the regulations coming into force in January 2018, will change market structure by creating new types of venues and placing caps on trading in dark pools, with waivers for large-in-scale trades. In addition, the buyside is required to take ‘sufficient’ rather than ‘reasonable’ steps to achieve best execution, and to be able to provide evidence to show how this have been achieved.

Instinet, the broker owned by Nomura, said in a recent white paper that the changes in the trading landscape under MiFID II could be as stark as London’s Big Bang in in 1986, which eliminated the role of jobbers and radically redefined the role of stockbrokers.

For more information on related topics, visit the following channels:

• Algos/DMA