A new block-trading venue launched by the New York Stock Exchange that links BIDS Trading's dark liquidity with the NYSE's public, reserve and hidden order flow, could boost the Big Board's share of large orders.
But the jury is still out since the system just launched last Thursday and brokers and institutions need to get connected and will need to be certified that certain order types work. "You have to have a system up and running before you'll get a specific user to pay specific attention to your system," said Tim Mahoney, CEO of BIDS Trading in an interview.
New York Block Exchange, known as NYBX, is a joint venture between NYSE Euronext and BIDS Holdings L.P., an alternative trading system (ATS), owned by 11 of the largest broker dealers.
"I think the unique aspect of it is linking the exchange to an independent dark pool, " says Larry Tabb, co-founder and CEO of TABB Group. While a lot of dark pools are connected to each others, said Tabb, "The way they are connected here is a little bit different. They're not trying just to match up dark flow. It's not all the algorithms linking the NYSE and BIDS together. It's not just the streaming order flow washing through BIDS' order book," said Tabb. "This is a way to link together reserve flow and hidden order flow, which tends to be bigger flow," said Tabb.
This is also part of a move to bring back the block trades to the NYSE. In the 80s and 90s, block trades of more than 10,000 shares were more than 50 percent of the NYSE's volume. "They were matched upstairs and crossed on the floor," notes Tabb. In recent years with the average order size shrinking to 200 shares, institutions have flocked to dark pools to seek anonymity and minimize the risk of moving the market. Today block trades are about 23 percent of the NYSE's volume, according to published reports.
"It's a way to increase the fill rates on the NYSE, encourage people to post more orders and to post larger orders and also create more block liquidity," said Joe Mecane, EVP for U.S. markets at NYSE Euronext referring to NYBX in an interview. One of the differences that NYBX may have over other darks pools is that "most dark pools are semi-insulated, said Mecane. They tend to transact within their own pool, though there is some activity between then," he acknowledged. "Second, they tend to be focused on the inside price and at the midpoint. Those two factors make it harder to actually line up the two sides of the trade, said Mecane.
Source: http://www.advancedtrading.com/showArticle.jhtml?articleID=213001260
