POSIT: Building Liquidity With Foreign Partners

POSIT, the Portfolio System for Institutional Trading, wanted to hit the international ground running. The electronic auction, run by New York-based ITG, said strong partners in global markets get results, attract major clients and build liquidity.

POSIT was jointly launched in 1987 by the Los Angeles-based third-market broker dealer Jefferies & Company, and BARRA, a California software and investment research firm. Jefferies holds an 80 percent share in ITG. The system, originally only accessible by institutions, came a long way like Instinet crossing single orders or portfolios twice daily. Broker dealers were first allowed to use POSIT in 1995.

Orders continue to be placed using a desktop computer, a modem and special software. In 1994, ITG, a registered broker dealer, went public on Nasdaq.

POSIT performs five daily crosses on listed and Nasdaq stocks in the U.S. at 10 a.m., 11:30 a.m., 12:30 p.m., 1:30 p.m. and 3 p.m., (EST). Crosses are anonymous, therefore the trade has no market impact, experts say, and it occurs at a price between the bid and asked spread.

At the moment, POSIT has roughly 525 customers in the U.S., including 350 institutions and 175 broker dealers. POSIT trades an average of 15 million shares daily in U.S. stocks during its five crossing sessions. That volume does not include residual trades.

POSIT has an interface with the ITG trading desk. Therefore, residuals may be traded upstairs by ITG sales traders on an agency basis.


On the processing side, POSIT has electronic links to Brass, the widely-used Nasdaq sellside order-management system, Bridge IOE, and ESI, the executing and clearing broker for Bloomberg Tradebook.

POSIT has a reputation for technology. ITG’s high-end QuantEX workstation is used by about 100 customers for analysis, order routing and trade management for execution, a long-short strategy or perform VWAP trading (by volume weighted average price).

Mike Newmark, senior vice president of marketing at POSIT, says that trades on POSIT result in a match about 30 percent of the time on Standard & Poor’s 500 stocks. For less active small-cap stocks, seven or eight percent of trades match. Getting a match in a thinly-traded stock between a wide spread can result in large cost savings, Newmark noted. There is no charge unless the customer gets an execution. Software and training are free.

Here’s a peek at what’s happening for POSIT in the global marketplace.

AustraliaAustralian POSITwas originally licensed to ITG’s partner, Australian broker dealer Burdett, Buckeridge and Young (BBY). When ITG purchased an equity stake last summer, ITG and BBY formed their jointly-owned company, ITG Australia, which now runs Australian POSIT. There are morning and afternoon crossing sessions and brokers trade residuals. The system is similar to the POSIT system in the U.S.

Australia has one national stock exchange, the electronic-based Australian Stock Exchange (ASX). With more than 1,100 issues listed on the ASX and foreign interest increasing, observers say that Australian POSIT allows institutions and brokers to trade more cost-effectively.

Australian POSIT works with lists of stocks, as well as with single stocks. But some consider lists to be the most efficient use of the technology.

Money management in Australia tends to be concentrated in a few large institutional investors. Joshua Rose, executive vice president of sales and trading at ITG on the international side, says Australian POSIT has about 25 large institutional participants that collectively handle roughly 80 percent of all Australian assets under management. Crossing between the bid and asked spread is said to offer significant cost savings over other systems. ITG Australia executes residuals and provides quantitative research.

CANADA ITG, teamed in Canada with technology company Versus Technologies, co-developed ITG QuantEX/Canada, a workstation that performs analytics, order routing and trade management. The system can identify optimum size, pricing and timing of orders, as well as the exchange that is the best for price and depth. That ability is considered especially useful with lists of stocks. Orders can be routed directly to exchange floors.

On ITG QuantEX/Canada, customers can develop customized strategies. A strategy might involve an order to buy an oil stock, only if another oil stock is sold, and when the ratio of the prices of the first stock versus the second stock is less than say, 1.70. ITG QuantEX/Canada is tailored to Canada’s markets and certain broker information is available with the data feed. That information can be stored, and ITG QuantEX/Canada will know if a certain broker is always ready on the bid in a particular stock.

Rose notes that ITG QuantEX/Canada runs no purely Canadian crossing sessions, allowing customers to cross Canadian stocks. That largely reflects the regulatory climate in Canada. In Ontario, regulators are still grappling with how to regulate electronic trading and proprietary trading systems. For the more than 200 Canadian companies interlisted or listed on U.S. stock exchanges, a Canadian broker dealer, but not a Canadian buy-side institution, may enter his order into one of the five U.S. crossing sessions.

ITG also runs the ITG Canada desk. Since it is an international dealer in Canada, ITG can solicit Canadian brokers as well as institutions for non-Canadian stocks, and American and non-Canadian investors for Canadian stocks.

Since Versus also owns Versus Brokerage Services, Inc. (VBSI), a full-service firm, customers may use them. VBSI is a member of the Toronto, Montreal, Vancouver and Calgary stock exchanges, as well as the National Association of Securities Dealers.

ITG declined to divulge its trade volume generated in Canada, except to say ITG is doing a “fair amount” of business. ITG provides Canadian institutional investors the ability to access POSIT and has provided some with SuperDOT terminals allowing them to access the New York Stock Exchange. ITG allows U.S. investors to route orders for Canadian stocks for direct electronic execution on an exchange floor or to the ITG Canada desk for upstairs trading.

Japan&EUROPE Bob Russell, a senior vice president of new business at ITG, said ITG is working to develop business opportunities in Europe and Japan, and is currently talking with potential partners. “There is a lot of interest,” he said.

International Stock Market Indices

YTD (12/12/97)

Country Index Close Net Change Pct Change

Argentina Merval Index 653.29 +4 +1

Australia All Ordinaries 2494.00 +69 +3

Belgium Bel-20 Index 2434.13 +539 +28

Brazil Sao Paulo Bovespa 9146.00 +2106 +30

Britain London FT 100-share 5045.20 +927 +22

Britain London FT 250-share 4757.90 +268 +6

Canada Toronto 300 Comp 6641.89 +715 +12

Chile Santiago IPSA 112.95 +13 +13

China Dow Jones China 88 154.29 +42 +37

China Dow Jones Shanghai 155.53 +41 +35

China Dow Jones Shenzhen 170.57 +42 +33

France Paris CAC 40 2830.26 +515 +22

Germany Frankfurt DAX 4082.60 +1194 +41

Germany Frankfurt Xetra DAX 4061.91 +1182 +41

HongKong Hang Seng 10614.66 -2837 -21

India Bombay Sensex 3329.27 +244 +8

Italy Milan MIBtel 15593.00 +5022 +48

Japan Tokyo Nikkei 225 15904.00 -3457 -18

Japan Tokyo Nikkei 300 239.21 -41 -15

Japan Tokyo Topix Index 1198.84 -272 -19

Mexico IPC All-Share 4953.04 +1592 +47

Netherlands Amsterdam AEX 887.74 +240 +37

Singapore Straits Times 1632.98 -584 -26

South Africa Johannesburg Gold 682.60 -823 -55

South Korea Composite 350.68 -301 -46

Spain Madrid General Index 615.78 +171 +38

Sweden Affaersvaerlden 2929.61 +527 +22

Switzerland Zurich Swiss Market 6018.70 +2077 +53

Taiwan Weighted Index 8398.27 +1464 +21

Source: Dow Jones