03.21.2013

Buy Side Seeks to Plug Information Leaks

03.21.2013
Terry Flanagan

Agency broker-dealers are being tasked to come up with ways of alleviating concerns by their buy-side clientele of getting their block orders picked off by opportunistic traders due to information leakage.

“Given the amount of fragmentation that exists in the markets today, the objective is to gain access to as much liquidity as possible with the least amount of information leakage,” said Ryan Larson, head of equity trading (U.S.) at RBC Global Asset Management.

ITG, an independent agency broker, provides POSIT Alert, a platform for sourcing large blocks of liquidity, actively alerting buy side traders to liquidity that matches orders on their trade blotter.

Buy side traders use POSIT Alert to prevent information leakage, maximize liquidity and reduce market impact by matching at the midpoint without the need for negotiation, according to ITG.

“Information leakage is a fundamental concern to buy side traders,” said Jamie Selway, managing director and head of electronic brokerage at ITG. “If you’re working for the buy side trader, you’re always trying to minimize information leakage, because the name of the game is anonymity. “You’ve got huge orders that need to go out unobserved, or else their anonymity will be impacted.”

The latest release of POSIT Alert provides liquidity access across 28 countries in a single application, with improved customization options, enhanced blotter sweep filtering and new hot button capabilities to streamline trading workflow.

“It’s a rules-based system, which means that if an order is of a certain size or comes from a certain order management system, sweeping takes place automatically,” said Selway. “Sweeping means that it taps into a trader’s blotter via their OMS, and presents them with possible matches.”

The information is shielded from sell side trading desks, thereby minimizing the risk of information leakage.

“This is not about sharing blotter information with trading desks,” said Selway. “It’s about sharing information with us, which we then aggregate and present to other buy side institutions.”

POSIT Alert currently offers more than 1.1 billion shares of active liquidity on a given day in the U.S., with an average trade size in 2013 of over 33,000 shares, compared to approximately 300 shares on U.S. exchanges, while average trade value in POSIT Alert in Europe is approximately $1.1 million.

Average daily volume crossed in POSIT Alert in the US is up 21% so far in 2013, compared with the same period in 2012, while in Europe, average daily value traded is up more than 88% year-over-year.

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