By Terry Flanagan

Internalization to take Flight

A shrinking sell-side may be inevitable, but some buy-side firms don’t care to wait.

The world’s largest buy-side firm, BlackRock at 3.3 trillion is taking its first steps to re-writing the rules of Wall Street by establishing, essentially, its own dark pool. If the practice is carried to the firm’s peers, it would bear life to a new wave of fully independent asset managers, one without a sell-side broker dealer to match trades.

As revolutionary as a global marketplace without middlemen market makers may seem, this is already happening, according to Nanette Buziak, head of equity trading at ING Investment Management. BlackRock’s plans to internalize trades would merely fuel the trend’s effort to gain traction.

“This is something that will take more flight; we can do it as long as we know there are a lot of SEC (Securities and Exchange Commission) rules surrounding it,” Buziak told Markets Media. “Buy-side firms just need to do it without showing that you are favoring one client over another. We can do it; we’ve done it before where it makes sense.”

Buy side to buy side trading is currently exercised mainly among the industry’s largest firms, such as the BlackRocks and INGs—the latter which has nearly €400 billion under management. “You need the same agenda,” Buziak said. Specifically to BlackRock, she noted the firm’s long-only business combined with their ETF (exchange traded fund) business helps promote “overlapping strategies.”
Smaller and mid-sized asset managers have yet to partake in internal trade matching because of “lack of scale.”

Traders of other, more illiquid asset classes may have a more difficult time with a direct buy side to buy side link-up due to the fact that they may not be as electronic as their equity counterparts. The rules and regulations with non-equity trading may be more complex, but when asked if internalization could more flight in such areas, Buziak commented, “I don’t know much about the regulations, but I don’t see why not.”

Related articles

  1. Corvil Deploys Real-Time Analytics

    The addition of Essentia behavioral analytics solutions is an extension of Northern Trust Whole Office.

  2. Upstart exchange has seen market share increase to near 4%.

  3. Goldman Sachs Asset Management’s fundamental equity business manages over $20bn in thematic equities.

  4. Data extraction and integration is the second stage of a digitization process.

  5. With Ankit Mittal, Business Change Manager, Global Trading, Schroders