Liquidnet has rolled out a new version of its platform that integrates its pool of institutional liquidity with analytics, execution, and commission management, with the goal of optimizing trading and fund performance.

The platform, Liquidnet 5, features an integrated commission management and payment suite, which eliminates the obstacles and conflicts that affect best execution.

“It’s incumbent on us to make our members smarter and better at what they do,” said Seth Merrin, founder and CEO of Liquidnet. “By having our own massive liquidity pool, we allow them to execute without having to choose between using an order for paying commissions and using an order for improving fund performance.”

He added, “We will use our liquidity to help manage and pay and reconcile commission payments, which is a huge headache and doesn’t add any value to the trading process. Every basis point matters.”

Liquidnet 5 allows traders to efficiently control access to Liquidnet’s pool of natural, institutional liquidity, as well as control access to other sources of safe and actionable liquidity from public and private companies, pre-approved brokers and exchanges, the company said in a release.

Traders will also have access to embedded analytics that will help inform and support pre-trade decision making and post-trade evaluation in order to ensure best execution objectives. They can improve performance by automating workflows, applying a range of execution strategies, and managing and monitoring multiple algo orders all at once while also executing in the block pool, according to Liquidnet.

“Our members are looking at a million different data points that they’re using in order to decide how to trade, where to trade, when to trade. At the same time, there’s a whole suite of different execution tools at their disposal, and the decision has to be made as to what to use,” said Natasha Shamis, global head of product at Liquidnet, who is responsible for setting the direction and strategy for the integration of Liquidnet’s products into Liquidnet 5.

“So we said, ‘Let’s give them commission management solutions. Let’s give them those navigation and algorithm analytics solutions at the same time and keep innovating in ways to source additional liquidity globally, and let’s do it all in one integrated platform,'” Shamis added.
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The issue of commission sharing arrangements and soft dollars is a contentious one because regulators, in particular the U.K.’s Financial Conduct Authority and the European Securities and Markets Authority have issued proposals to either ban or regulate the practice.

Soft dollars refer to commissions paid over and above the agreed upon cost of execution by money managers to brokers. In return, brokers provide research and services used to benefit accounts over which a money manager has investment discretion.

Under Esma’s draft rules for MiFID II, asset managers will be required to provide a rigorous assessment of how much each piece of research will cost, and will have to receive periodic “opt-in” by their clients of the proposed research budgets. While these requirements are considerably more onerous than current rules, they are not as strict as the UK FCA’s proposed complete ban on paying for investment research with dealing commissions, according to Investment Technology Group.

Shamis said, “We have a full commission management suite that allows our members to pay their bills no matter where they’re trading, and to separate their best execution from their research obligations. We’ve given them full transparency, full flexibility in the way that they monitor, and we’ve integrated it as they’re trading so that they’re paying the bill and getting best execution at the same time.”