Bring back the block trade.
That sentiment has long been the mantra of the buy-side trader, who wishes to find large-size liquidity while keeping intentions quiet and achieving best execution. To that end, Citi has rebranded its Liquifi ATS to CitiBLOC, an alternative trading system designed for block execution. But as Young Kang, Citi’s Americas head of electronic cash trading explained to Markets Media, there are a few twists in the pool to protect the institutional trader.
As part of the pool’s rebranding, re-launch and modifications, Citi has also modified its Form ATS.
“We want to leverage our electronic capabilities to further expand our product breadth and reach,” Kang said. “This is another major milestone for our platform and underscores our commitment to provide best execution and premium service to our client base. Our goal is to maximize the opportunity to execute large blocks of stock and minimize inefficiency in the process.”
So how is this possible?
“We have redefined the Conditional Order by leveraging its best features by introducing a 100% automatic firm-up process, coupled with monitoring and enforcing a high firm-up rate. We are encouraging what we believe to be the right behavior: crossing priority being ‘Rank’ followed by ‘Time.’ We are eliminating the traditional information leakage concerns associated with manual conditional orders as we seek block crosses,” Kang said.
Kang explained that the platform leverages conditional orders to seek block execution while minimizing the opportunity cost typically associated with trading blocks of stocks. It is designed to only accept auto firm-ups, and has a nearly 90% normalized firm-up rate.
CitiBLOC accepts conditional buy and sell orders and sends an invitation to firm-up to each of the participants when there is a potential match. It has a unique rank, time matching priority. Rank is determined by a combination of firm-up rate and size of firm-up orders. A minimum size of 5,000 shares or a notional value of at least US$100,000 is required per order.
If a user’s firm up rate falls, Citi and Kang’s team will first work with them to fix any potential issues. If the user is unable to maintain an acceptable firm up rate of 80% and no solution presents itself then the user will be asked to leave the pool.
If these specific criteria aren’t met, a trader won’t be able to execute within the pool.
“We are looking for customers with block size orders who are willing to participate in a conditional order pool that we believe combines execution quality with minimal information leakage,” Kang said.
Kang added that this helps also increase average trade size within the pool – so instead the actual trade size within CitiBLOC stands between 15,000 to 20,000 shares compared to published data that report industry-wide dark pool average trade size is closer to 300 shares.
In order to reduce client latency, Citi has moved its matching engine from data center in TriBEca to Equinix’s NY4 data center in Secaucus, New Jersey. It is here that upwards of 450 customers conduct business within the 340,000 square foot facility, which also houses infrastructure for several of the major financial exchanges and brokers.
The crossing engine is also compliant with the SEC’s tick size pilot as all executions are done at midpoint.
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