Buyside traders may soon find themselves competing with brokers by using indications of interest to find the other side for large orders. At least that’s the goal of Pulse Trading’s BlockCross ATS, whose buyside-to-buyside IOI product can now reach thousands of institutions with a Bloomberg terminal. The IOIs are immediately executable.
“Before, only the sellside put out indications of interest,” said Wally Sullivan, managing partner at Pulse. “Now buyside traders themselves can post indications, represented by the BlockCross ATS BLKX, that are visible only to the buyside. This functionality has the potential to change how block trading is done in this country.” Sullivan and three colleagues founded the agency broker in 1999.
Pulse and Bloomberg Tradebook recently inked a co-distribution deal for Pulse’s BlockCross ATS. Pulse is the exclusive distributor of the .NET version of BlockCross and Tradebook is the exclusive distributor of the terminal version of the dark pool. The buyside IOIs are sent out via the Bloomberg IOI network and displayed as BLKX.
“When you see BLKX, you know it’s an institution, you know it’s firm and you know it’s auto-executable at the NBBO midpoint,” Sullivan said. “BLKX is the beard used by institutions when posting IOIs.” The broker-sponsored IOIs go out through BlockCross but are controlled by the buyside trader.
Buyside firms sending out indications through BlockCross must post orders for a minimum of 5,000 shares that can be immediately executed at the midpoint of the national best bid and offer. The amount that’s executable can be the amount shown or greater. Traders can post two-sided indications or they can indicate they’re a buyer or seller in a particular name.
“For buyside traders, it can be more efficient to hold their cards close to their vest,” Sullivan said. “This is more targeted and they get more bang for the buck. Some traders are finding they can attract significant attention for their order even by showing just a nominal quantity.” He added that the product’s main appeal is the fact that these indications reflect real institutional orders. Traders posting IOIs can currently send IOIs to all buyside firms on the Bloomberg IOI network, to those with over $10 billion in equities or to the top 50 institutions.
The current hit ratio for BlockCross orders that include an IOI is over 40 percent, according to Sullivan. “This is significant since these are names that typically have already washed through all the dark pool options,” he said.
The BlockCross ATS, which has several ways of executing blocks, including size negotiations and auto-executions, is just over a year old. The dark pool is geared toward institutions, although sellside firms and their algorithms can access the system. BlockCross’s buyside-only indications product launched last fall for Pulse’s customers. Sullivan declined to reveal the ATS’s current average daily crossed volume, although he said it’s increasing and should ramp up significantly as a result of Bloomberg’s distribution prowess.
To post a buyside-only IOI, an institution must be a customer of either Pulse Trading or Bloomberg Tradebook. Pulse currently has about 100 buyside clients, while Bloomberg Tradebook has several hundred institutional customers. Responders to these IOIs have more leeway. They can respond to BlockCross IOIs through direct connections or indirectly through participating brokers’ algos, since the orders behind the IOIs reside in the BlockCross pool, which algos are able to access.