As every fund manager knows, the real solution to transaction costs is cutting out the middlemen and minimising market impact. Liquidnet, the recently established alternative trading system (ATS) that allows fund managers to trade large blocks of stock anonymously without going through brokers, aims to allow them to do exactly that. And it is now establishing itself in Europe. A European headquarters has been established in London and representatives of eight leading fund managers have agreed to serve on its European advisory board.
Launched less than a year ago, Liquidnet has already attracted 128 members/users in the United States, which between them manage more than $4.2 trillion in equities. Members trade large blocks of stock anonymously and within the spread, executing at an average trade value of $2.8 million. “We look to solve the institutional investor’s two biggest problems: accessing liquidity and preserving anonymity,” said John Barker, managing director of Liquidnet Europe Limited. “Our U.S. Members have saved their firms millions of dollars by directly trading with each other on our system. We delivered what we promised – anonymous block trading with little to no market impact costs. Now it’s time to help institutions in Europe do the same.”
The European Advisory Board consists of Paul Collins (Aegon Asset Management); Keith Wright (Baring Asset Management); Betsy Anderson (Britannic Asset Management); Gunner Burkhart (Deutsche Asset Management); Marcus Hooper (Dresdner RCM Global Investors); Steven Wood (JPMorgan Fleming Asset Management); Mary McCave (Legal & General Investment Management Limited); Martin Ekers (Morley Fund Management); Clive Williams (T. Rowe Price International, Inc).
Liquidnet expects its European Members to be live by the third quarter dealing in UK, Dutch, Swiss, French, German and U.S. equities, and for activity to grow rapidly thereafter. “Our data shows that European fund managers have a more difficult time trading large blocks and, on average, pay more in hidden transaction costs. Alternative trading systems, like Liquidnet, can substantially reduce these costs,” says David Hall, President of Plexus Group,the investment performance and trading cost consulting firm.
Unlike other alternative trading systems and electronic communication networks (ECNs), Liquidnet brings buyers and sellers together without revealing their identity or the total quantity of their orders, enabling them to negotiate directly. The result is the largest average execution size in the U.S. (64,000 shares/trade) and more than 90 percent of trades executed within the spread. “Simply put, our Members execute trades that would otherwise be impossible in today’s marketplace,” said Seth Merrin, founder and CEO of Liquidnet.
“With Liquidnet’s expansion into Europe, its Members will have access to liquidity from six distinct and disparate markets. Anonymous, peer-to-peer large block trading across those markets is a powerful benefit that, to date, no other trading platform is able to offer, ” said Marcus Hooper, Head of equity and derivative dealing at Dresdner RCM and a Liquidnet Europe advisory board member. “The seniority and strength of Liquidnet’s European Advisory Board is a reflection of the demand for this type of service.”