Block Liquidity System Launched03.18.2014
Venue proliferation spurred by U.S. regulations, such as Reg NMS, has significantly increased liquidity fragmentation in U.S. equities markets. Buy-side traders looking to efficiently enter and exit large U.S. equities positions prefer to use block trades to minimize market impact, but are finding block size liquidity has become a challenge due to fragmentation and the growing use of algorithmic trading.
“The ability to trade in block size has become paramount,” said Rob Hegarty, global head of equities at Thomson Reuters. “We have leveraged all our assets in the Autex family—FIX connectivity, IOIs, and advertised trades-to allow clients to execute against it. We are moving from a deep, broad and established liquidity seeking tool and allowing clients to trade on it.”
Thomson Reuters has launched Block Connect, which allows the buy-side to trade impact by accessing natural block liquidity, while providing brokers with tools they need to seek a counterparty for block trades. “This new system increases access to liquidity and improves market efficiency by directly addressing changes in equities market structure, meeting the unique needs of both buy and sell-side participants,” Hegarty said.
Block Connect is built on Thomson Reuters Autex and Autex Trade Route, providing brokers with immediate access to the Autex community of over 750 buy-side firms who in turn have access to over 700 executing brokers.
Autex is Thomson Reuters’s brand for buyside/sellside connectivity. It encompasses FIX connectivity (Autex Trade Route), Autex IOIs, and advertised trades. Autex Trade Route delivers order flow of two billion shares per day in equities, options and futures, as well as FX and fixed income.
“An Advertised Trade is another message type that comes across our Autex network,” Hegarty said. “When a sellside firm has executed a large block, they can put out a message to let buy side firms know they have liquidity in that stock. [Block Connect] is not just putting out IOIs, trying to establish that participants are providers of liquidity; Block Connect actually executes against those IOIs and looks for actionable liquidity where those brokerage firms have pushed out advertised trades.”
In that sense, it’s “transactional-izing” the Autex network by allowing clients to trade, as opposed to just information sharing. “It’s taking latent equity liquidity and allowing clients to trade against it.”
Existing broker-operated block trading systems do not meet the buy-side need for anonymity and access to deep liquidity, while third-party block crossing networks, or ATSs, disintermediate brokers from their buy-side customers.
“There are broker-owned block trading platforms, which are not exclusively block platforms,” Hegarty said. “There are also crossing networks or ATSs, some of which are block-focused but many of which are not. There are fewer blocks (trades of 10,000 or more shares) out there available to trade today than there were just a few years ago.”
Block Connect is integrated with industry leading sell-side and buy-side OMS and EMS systems such as those provided by Eze Software Group, Fidessa, FlexTrade, and Linedata, providing customers with easy access to the liquidity available via Block Connect through their current OMS and EMS systems.
“At FlexTrade we have worked tirelessly to provide our buy- and sell-side customers with seamless access to all forms of liquidity, especially for block trading, which is a constant challenge considering the fragmentation in the equities markets today,” said Jamie Benincasa, senior vice president, equities at FlexTrade. “Thomson Reuters Block Connect tackles the problem with such ease that it’s well positioned to become an industry standard for fair and open access to large-sized block liquidity.”
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