Australian funds managers have been among the most willing in the world to reduce their trading volumes through full-service brokers in preference for alternative trading systems (ATSs) such as Liquidnet, according to Seth Merrin, CEO of the block-trading broker which transacted $200 million in the three weeks after launching here on February 20.
Merrin said the “pushback” from funds managers unwilling to risk their traditional broking relationships by diverting volume to a “quantity discovery” platform had been minimal. “You’ve had a kind of monopolisation of access to liquidity in Australia for so long, I don’t think there’s a lot of love lost between the buy side and the sell side here,” Merrin observed. “Funds managers have been receptive to what we’re trying to do, and they’re jumping at the chance to execute more trades themselves.”
The inventor of the world’s first order management system, ironically owned today by ATS competitor ITG, Merrin said resistance globally had been strongest from hedge funds.
Head of Liquidnet Asia, David Klinger, said this was because some hedge funds, typically with smaller FUM and headcount, tended to value broker ideas very highly and were conscious of preserving their access to IPOs. Liquidnet Australia’s co-head, Stephen Zilioli, said only four trades so far had had to be cancelled after moving outside the buy/sell spread during crossing, thanks to the ASX’s ‘priority crossing rule’ where blocks under $1 million are exposed to the market for 10 seconds.
The priority crossing rule has moved Liquidnet to apply for a markets licence in Australia, the only territory in the world where it has sought to do so.