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BestEx to launch first ‘twilight’ trading pool
(Pictured: Phillip Weinberg)
BestEx, the Australian provider of outsourced trading services to fund managers and super funds, is to launch a new-style trading ‘venue’ which aims to combine the best of the ‘lit’ and ‘dark pool’ markets.
To be launched in Australia in the first quarter of next year, the trading venue, called Block Event, will later be rolled out through Asia, using the firm’s international partners.
Phillip Weinberg, founder and chief executive of BestEx, said the new service, which he calls a ‘twilight’ or ‘semi-lit’ pool, will exclude high frequency traders (HFTs) because of a high minimum trade requirement of $1 million and a controlled trading window of just 10 minutes per day when the market is semi-lit, with concentrated liquidity.
Block Event will compete with dark block trading venues like Liquidnet and Posit, the exchange-operated dark pools of the ASX and Chi-X and those operated by the big investment banks.
“It’s a hybrid model we’ve developed after a lot of consultation with fund managers,” he said. BestEx has applied for a patent for the system.
Weinberg estimates that HFT accounts for about a third of all trading volumes in Australia, which is less than some overseas markets but still amounts to a “tax on all investors – albeit not a huge one”. HFTs split their trades into very small parcels in order to quickly enter and exit positions, taking advantage of fragmentation. For instance, the average trade size across all venues in Australia is $5,400.
Just before 11am each day, Block Event will “light up”, with the stocks available for trading named. The size and direction of orders are not revealed. The market trades continuously for 10 minutes in the semi-lit environment and then functions as an intermediated dark pool after that time, with the technology combined with “trusted intermediation” to match the orders, Weinberg said. Fund managers and super funds can use the system directly or go through their brokers.
“We believe this trading venue is a natural progression in dark trading for the institutional investor,” he said.
