Pause Button for Large Stock Trades

Terry Flanagan

In fast-moving markets, prices can move quickly for or against an institutional investor that wants to trade large blocks. Even in highly liquid stocks, the ability to fill an order will often require that the order be posted on multiple venues, each of which may have enough liquidity to fill only part of the order.

PDQ Enterprises, developer of PDQ ATS, has launched AUCTION1, an electronic equity auction created specifically for larger sized orders. The “1” identifies the length of the auction – up to one second. AUCTION1 allows for the matching of orders with different latency sensitivities, thereby aggregating liquidity from a fragmented market, the company said in a release.

“We’ve put together what we believe should be an effective institutional product,” Keith Ross, CEO of PDQ Enterprises, told Markets Media. “We will be in a position to aggregate liquidity from different venues and different latency-sensitive participants in the marketplace to present to the initiating order.”

An order initiated through AUCTION1 can interact with passive so-called natural liquidity, algorithmic liquidity and market-maker liquidity, at the choice of the client, the company said. AUCTION1 requires a 2,500 share minimum to initiate an auction and responding orders must be 500 shares or greater.

“The way this will work is a client will send us an order that’s a minimum size of 2,500 shares,” Ross said. “We will pause it similar to what we do now, but this will be for an undetermined amount of time up to one second. In that time we can solicit conditional liquidity from other ATSs, and then at the end of the aggregation period, which will be when we think we understand we’ve solicited all that’s possible, we will run the auction and complete the trade if it’s possible.”

Ross said that the expected time needed to complete the auction will be much less than one second.

“Depending on how long it takes to confirm the conditional orders, that’s what will determine the length of the auction,” he said. “If we have three orders from three different venues, one might take 20 milliseconds, one might take 60, one might take 150 milliseconds to confirm. Once we’ve confirmed with everyone, then we’ll run the auction and make the trade.”

Feature image via Flickr/Conor Lawless under creative commons

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