BID Trading, an alternative trading system for U.S. equities, is pursuing a three-pronged strategy: openness, flexibility, and being the low-cost producer. That strategy appears to be paying off, as the company posted record block trading volumes for January.

BIDS Trading allows market participants to trade large blocks of equities without revealing their order. Information disclosure is controlled by the trader via customizable trading tools: traders set their minimum block size to help protect their order and they can filter out counterparties based on past trading behavior.

Total volume in BIDS averaged more than 86 million shares per day in January. Block trade volume accounted for more than 32 million shares, which was up 88% year over year.

“Over the last two years, our block volume has grown dramatically. We’ve doubled the amount of block volume as a percentage of total volume, and we’ve doubled the number of sponsored participants,” said BIDS CEO Tim Mahoney. “The BIDS model allows buy-side participants to connect from their desktop using our front-end technology, BID Trader.”

BIDS Trading uses a sponsored access model, whereby broker-dealers connect their customers to the platform. The latest such sponsor to sign up is Jefferies, the global investment banking firm.

“We are pleased to add BIDS Trading to our extensive network of execution platforms,” said Peter Forlenza, global head of equities at Jefferies. “This value-add service, combined with Jefferies’ robust trading platform, demonstrates our commitment to serving the increasingly diverse needs of our institutional clients — a commitment that’s been at the heart of our firm’s success for over 50 years.”

Driven by high-frequency trading, lit and dark venues, and exchange pricing, the pace of market transformation has outstripped the ability of regulators to keep up. In a December speech, SEC commissioner Michael Piwowar criticized the agency for abandoning its concept release on equity market structure, which was published in 2010, and said another review is in order.
Mahoney agrees, but cautions against using a sledgehammer approach.

“You need to recognize how good our equity cash market structure is today,” he said. “We spent a ton of time focused on the failure of the Nasdaq SIP, without recognizing the fact that we have a consolidated tape, which Europe does not. It makes sense to look at the market holistically, so long as it’s a balanced approach.”

The biggest change compared with 2010 there’s more data, he added. “The Midas system contains a lot of data that the SEC can analyze to make better decisions.”

BIDS Trading has focused a great deal of effort on improving order interaction and messaging to better facilitate block trades. The mix of buy-side flow and algorithmic flow from the sell-side is leading to greater liquidity, more trading opportunities, and increased market share.

“We’ve spent a lot of time on improving workflow. We’ve given customers the correct tools, whether they want to trade off an algorithm or a human being trading off our front-end technology,” Mahoney said. “We want to give them the tools to let them determine how to trade. Ultimately, the best execution responsibility rests with the users, and they should be empowered to make decisions based on the characteristics of the orders. Only the portfolio manager and the trader understand the objectives and timing of those orders. BIDS is a venue where they can take advantage of characteristics such as size and anonymity.”