With stock crossing networks set to take on more volume, a shake-out among operators appears inevitable, according to a report by Tabb Group, which says the block trading landscape has begun to take shape around a handful of different crossing systems.
The report states that although crossing network volumes have grown, the market will come to be dominated by just a few systems such as LiquidNet and Pipeline, Posit and Nasdaq Closing Cross and a small number of blind continuous crossing networks and internal crossing systems.
According to the report, the combined crossing network volume in the marketplace has grown to nine per cent of total equity trading volume, and is projected to increase by three per cent a year for the next several years.
But according to Jeromee Johnson, senior analyst at Tabb Group and author of the report, the popularity of crossing networks and 'dark books' - limit order books or trading networks that do not publish a quote in the open market - is further fragmenting a type of order flow that has previously been difficult to bridge.
"A further fracturing and fragmentation of liquidity between not only the block trading markets but between and across all of the ATS venues is happening now," says Johnson. "The largest pools of block liquidity – LiquidNet, Pipeline and Posit – will survive and grow through the market structure changes ahead."
While Tabb Group believes that the incorporation of dark books into algorithms and aggregation tools is well underway and will be the common way to access many of the block trading systems and dark pools of liquidity within the next two years, CEO Larry Tabb adds a cautionary note. "There’s not sufficient room in the market for the number of continuous blind crossing networks that exist today. As we saw with the closing of Harborside+, if your market structure doesn’t differentiate and add value, it will be impossible to survive as a competitive venue."
Earlier this week US investment bank Merrill Lynch said it was teaming with New York-based Investment Technology Group (ITG) to establish a global block order crossing service, while in February Credit Suisse said it was looking to register its internal crossing network, CrossFinder, as an alternative trading system in a bid to grow liquidity and boost transparency.