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CEO CHAT: JonesTrading's Hill Says Block Trading Is Alive and Well
Traders Magazine Online News, May 25, 2017
The block trade is not dead. Not by a longshot.
While fragmentation might be a fact of the modern-day equity market structure, the ability to source a sizable chunk of stock isn’t impossible, regardless of name. Jones Trading, headed by CEO Alan Hill, continues as one of the more prolific block trading firms. In a conversation with Traders Magazine, Hill talked about block trading and its future.
Hill is no stranger to the equity markets. He joined Jones in 2006 as the firm’s Chief Financial Officer and worked his way through the C-level suites until becoming CEO in 2015. Prior to Jones, Hill worked at KPMG, Jefferies and Korn Ferry. At Jones, he’s help spearhead the firm’s block-trading business and is involved in other new businesses the firm is engaged in, such as: outsourced training, prime services, capital markets and options trading. Despite the more recent focus on diversification, Hill and Jones still eye block-trading as the firm’s core business.
So how does Hill define the block? Is it still any single executed order of 10,000 shares or more?
“I think when it comes to blocks the 10,000 share number is a bit of an anachronism,” Hill told Traders Magazine. “We look at it from a much more sophisticated angle. “We look at blocks relative to average daily volume of the stock, how wide the spread is in the stock. And anything that is kind of 15% - 20% of the ADV of a stock we would look at as being a block.”
Hill explained further that a block could be 1,000 shares for a stock that very illiquid or it could be 100,000 shares to 200,000 shares for a liquid stock.
“We really try and look more at the size of the client order versus ADV in the stock,” Hill continued. “And then from a pre-trade perspective, we measure how much we would expect that size of an order to move the market.”
While block trading is assumed to be easier in more liquid stocks, what about small cap stocks? Is executing a client order of 20% to 35% of a stock that has a small float a sweeter trade for Jones ?
“I think we have the biggest impact and value in the small and mid-cap space,” Hill said. “If you look at the performance basis of how well a block trade performs, a block execution clearly outperforms in the small and mid-cap space. But there's obviously value to executing blocks in large cap stocks too.”
But is block trading purely the realm of the largest money managers –– or is block trading for everyone?
“I think everyone trades blocks,” Hill began. “And our advantage is that we have a network of 1,500 to 2,000 clients – a really diversified client base. So, we can trade with traditional institutions, be it mutual fund or hedge fund. But also we trade a significant amount with private equity firms, venture capital firms, or corporations who are engaged in a buyback.”
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