Deutsche Boerse AG and Liquidnet Holdings Inc. said they will link dark pools to allow institutional investors such as mutual funds to buy and sell large blocks of German shares.
The operator of the Frankfurt stock exchange and the New York-based trading platform, which says its clients manage about $12.4 trillion, will offer a service where Liquidnet members and Deutsche Boerse traders can match blocks of stock on the exchange’s Xetra MidPoint electronic network. The service starts on July 29, executives from both companies said in an interview.
“This is a new service for block trading in German equities,” Martin Reck, managing director of cash markets for Deutsche Boerse said in an interview. “We will bring together two communities: the Xetra community of banks and brokers on our system, and -- on the other hand -- the Liquidnet community, reaching the buy side globally.”
Fund managers and institutional investors need a forum to execute large block orders privately as executing them in public may move the price of the securities. Exchange members who want to trade blocks usually move to the over-the-counter market, according to Deutsche Boerse, which wants to bring them back onto its trading systems.
Liquidnet will act as a so-called block agent, matching the liquidity on its own venue with that on Xetra MidPoint. That will make it the first company to do so on Deutsche Boerse, although others can apply to join. Xetra MidPoint enables investors to trade without disclosing the volume or limit on their transactions.
Liquidnet, which allows customers to trade blocks of shares in two dark pools, also executes customer orders on exchanges through algorithms, or trading strategies that break larger buy and sell requests into smaller pieces.
The company signed a similar agreement with SIX Group, the operator of the Swiss stock exchange, in 2011.
“The Swiss exchange was the first step in this strategy for us,” Per Loven, head of international corporate strategy at Liquidnet said in an interview. “It’s a complement to our existing business. We want to supply additional liquidity so the buy side can interact with the Street, but in a way that doesn’t expose their orders in the open market. We cannot always find the other side of the institutional trade.”
The companies said high-volume traders pay 0.48 basis points per executed order until the end of July, and low-volume traders pay 0.55 basis points. They will waive the fees from August through October, increasing the charges to 1 basis point per executed order from November.