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Valerie Bogard, TABB

Alternative trading systems must compete to gain and sustain liquidity, says TABB


Block-focused alternative trading systems (ATS) face challenges in gaining and sustaining liquidity, according to a report by TABB Group.

In October 2016, the Financial Industry Regulatory Authority (FINRA) began a monthly initiative releasing new data on block liquidity in ATS.
 
TABB Group’s latest report, “Blocks in the Dark: Trading in Size on ATSs,” highlights the takeaways from this new source of block data and puts it in context in light of historical TABB-reported ATS block liquidity, industry trade size and off-exchange market share.
 
Research author Valerie Bogard (pictured) explains that with these added metrics, which are aggregated monthly and released two months in arrears, industry participants can review the percentage of shares each ATS executes using both the traditional share and notional block definition as well as the two different demi-block definitions.
 
Though the percentage of blocks has increased, block-focused ATS face challenges in gaining and sustaining liquidity.
 
There is more concentration in the highest-volume ATS, which have fewer block executions. The top five highest volume ATS executed 51 per cent of all ATS volume in August 2016.
 
Some 19 ATS have less than 5 per cent block volume using the share definition, while 17 ATS have less than 5 per cent block volume using the notional definition.
 
“As more ATS block data becomes available over the coming months, the industry will be able to discover how these trends are really playing out in the ATS landscape,” says Bogard. “It is only with a historical view of ATS block trading that we can truly gain any insight about shifting block volumes and which industry players are best meeting the market’s current needs.”

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