Instinet is set to launch a new US dark pool that combines multiple smaller buy and sell orders up to a specific volume threshold in an effort to attract more anonymous block trade order flow.
Instinet expects the patent-pending BLX platform will outperform traditional dark pools that either match buy and sell orders on a continuous basis or offer crosses at pre-determined times.
Under BLX, orders will be pooled and consolidated into a block at either 1000, 2500 or 5000 shares, depending on how actively the stock symbol is traded. BLX then opens a ten second window during which the national best-bid-and-offer price in the stock is snapped and other investors are are invited to join the pool.
In tests, the average trade size executed over BLX was 15,719 shares.
Jonathan Kellner, president, Americas, at Instinet, comments: "Given today's environment, in which the average trade size has fallen below 400 shares*, we believe there is a tremendous opportunity for BLX to help clean up the tape by aggregating orders from multiple parties and then initiating a point-in-time block cross."
The dark pool will be Instinet's fifth in the US and ninth globally.
The launch comes at a time of growing disquiet in regulatory circles over the effects of dark pool trading on market transparency. Traditional exchanges have claimed that the use of dark pools threatens fair price discovery and creates an uneven playing field.
The London Investment Banking Association is expected Monday to argue in favour of dark venues, claiming that they provide a legitimate service and encourage more liquidity.