Institutional electronic broker Liquidnet is applying for a license from ASIC, and hopes to be up and running in Australia by the third quarter this year.
Liquidnet was launched in the US in 2001 by Seth Merrin, and essentially operates as an anonymous electronic market place for funds managers and their large trades. Merrin said the group was optimistic the model would work in Australia and has already had some large funds managers indicate their interest. Anonymity is a key factor in the model’s success. As an indirect result of brokers placing large trades on behalf of institutional clients, information is often spread far beyond the final buyer which has the obvious consequence of influencing price. The Liquidnet system does not disclose who places orders, nor their ultimate size. Managers specify a range, usually of between 10 per cent of their total requirement upwards, and the final size of the trade is not known until it is executed – so managers know they are buying within a range at a certain price, but not how many shares until the trade is complete. As well as gaining the relevant licenses, Liquidnet is also working with order management systems (OMS) in Australia, such as IRESS, to enable the integration of the electronic system. There are no costs to join but a few minimum requirements – minimum assets under management of $200 million, only buy-side, no long/short positions and a proper OMS. Liquidnet then charges a 10bp fee for all trades. The Australian operation is being headed up by Sam Macqueen and Stephen Zilioli, and an operations manager is currently being employed. Macqueen said of the 60 large institutional managers in Australia the company expects to sign up at least 25. Liquidnet launched in Europe mid-2001 and started trading in Canada last year. Asian operations will be headed out of a Hong Kong office, which is currently been established as are a number of Asian offices including Japan and Singapore. As a global firm Liquidnet is able to offer funds managers international liquidity. Merrin says at least 50 of its members around the world want to trade in Australia.
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