Traders Magazine: BIDS Hits New Highs
August 15, 2011
BIDS Trading, the alternative trading system operator launched by a collection of sellside firms, has continued its dramatic growth, announcing another new trading record for Thursday.
On Aug. 4, BIDS saw volume hit 136 million shares, its fifth day with more than 100 million shares traded since the dark pool first passed that milestone on July 21. BIDS’ average daily volume in July was 72 million shares, up from about 65 million shares in June. (BIDS double counts its volume, a standard practice for dark pools.)
“We’re still early on in the development phase,” said Tim Mahoney, chief executive officer of BIDS. “Our successful competitors might have 500 plus buyside clients connected. We built our network slightly differently.”
BIDS, which launched in 2007, began providing block liquidity only for the sellside, starting with the firms that invested in it: Bank of America Merrill Lynch, Barclays Capital, Citi, Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan Chase, Knight Capital, Lehman Bros., Morgan Stanley and UBS. (NYSE Euronext is also a partner in the joint venture.)
The ATS later added buyside liquidity, and BIDS now boasts more than 120 buyside clients. Mahoney said he wants to triple that number, and the firm is now focused on adding new clients.
“We need to go out and sign up new buyside users,” Mahoney said. “The more diversified the base of users is, the more likely you are to get matches.”
Though BIDS is dedicated to block trading, it does not put limits on how large or small a block can be. Mahoney said customers can choose to trade in whatever increments they like, whether 100 shares or 50,000 shares.
“Our underlying assumption is the buyside trader should have tools that are flexible enough to let them trade however they need to under the specific circumstances,” Mahoney said. “By giving them flexibility, we’ve created a very buyside-friendly venue.”
According to numbers from Rosenblatt Securities, BIDS ranks in the middle of major dark pools in terms of volume, still smaller than Credit Suisse Crossfinder and Goldman Sachs Sigma X, but larger than UBS ATS and ConvergEx Millennium.
The average trade size on BIDS was 284 shares in June, according to Rosenblatt. That might not seem like much of a block when compared with trades on Liquidnet Negotiated, a block crossing system whose average trade size was more than 48,000 shares in June. (Liquidnet H2O, the firm’s streaming liquidity network, had an average trade size of 1,071 shares in June.)
Still, trade sizes on BIDS are close to what they are on many of its competitors. Credit Suisse Crossfinder had an average trade size of 188 shares in June, and trades on GS Sigma X had average size of 318 shares.
While order sizes on BIDS might not be especially large, the dark pool offers a different advantage to users by providing for conditional orders, according to Justin Schack, managing director for market structure at Rosenblatt.
“That’s something that’s relatively unique, in that you can have your interest in BIDS and then also have that same interest represented in other venues,” Schack said.
Conditional orders are particularly attractive to institutional investors, but Schack said some of BIDS’ growth is probably attributable just to the fact that it is now able to offer more liquidity.
“They’ve gotten more people to connect, and that tends to have a compounding effect, once you get to that certain critical mass,” Schack said.
Over the past year, BIDS has seen its volume increase more than 55 percent, according to Rosenblatt’s numbers, more than any other dark pool the firm tracks.
Launching BIDS the year before the financial crisis of 2008 probably wasn’t the most fortuitous timing, but Mahoney said the firm was able to work on building its systems while most investors were fleeing the market. Once things returned to something resembling normalcy, BIDS was ready to offer its services to buysiders.
Many observers have expressed concern over the increasing fragmentation of the market as more new dark pools come on line, but Mahoney said there is always space for players who help clients achieve their goals.
For BIDS, that means bringing the buyside and sellside together and allowing buyside participants to use their commission dollars in a more effective way, Mahoney added.