Investment Bank Alumni Take on Former Bosses With Dark Pool

  • Ex-Credit Suisse, Liquidnet trader is CEO of Block Event
  • Trading venue to start in Australia next month, Japan in 2016

David Klinger, who set up Asian electronic equity-trading businesses for Credit Suisse Group AG and Liquidnet Holdings Inc., is about to open a venue in Australia that he says will combine attributes of a dark pool and a sales desk.

Block Event will start facilitating large share trades next month, and plans to expand into Japan and Indonesia next year, Klinger said in an interview. While the dark pool doesn’t show users what others are doing, it allows the use of indications of interest, or messages that let computers know of trading intentions within the venue to solicit new orders. Klinger and his team will monitor those to check they’re legitimate, and also contact sellers whose trades don’t match to alert them when buyers return.

“We’re addressing some of the complaints that people have had from other types of venues,” said Klinger, the firm’s chief executive officer. “It combines the best bits of the electronic side -- you send your trading intentions in so you don’t actually have to go and advertise anything, which is the biggest problem with a sales-trading desk. But, you’ve also got the ability to access liquidity selectively, which is the good thing about a sales trading desk.”

Main Competitor

Block Event is taking on ASX Ltd., Australia’s main exchange operator that also runs the country’s biggest dark pool, and many of the world’s major investment banks, which operate private stock-trading venues. Between one quarter and a third of stock transactions in the nation now occur away from exchanges, the securities regulator estimates. Dark pools have proliferated in the past decade as investors sought venues to buy and sell shares without disclosing their intention or price.

Klinger moved to Hong Kong from Sydney in 2000, where he set up and managed Credit Suisse’s electronic equity-trading desk. He left seven years later to do the same for Liquidnet Holdings Inc. He co-founded Block Event with Phillip Weinberg, who is the chief operating officer.

Experienced Traders

Shane Wallis, who set up an block-trading desk at CLSA Ltd. in Hong Kong, is the managing director for Asian block trading at the new firm. Paul Horneman, who ran sales trading for Morgan Stanley and CIMB Group Holdings Bhd in Australia, will look after Australian trades. Jon Evans, who spent more than 10 years as managing director and head trader at JPMorgan Asset Management in Tokyo, has an advisory role at Block Event.

By targeting large trades, Block Event is going head-to-head with firms such as Investment Technology Group Inc. and Liquidnet, which have chased big transactions for years.

“We think it’ll improve the market structure,” Klinger said. “We think we can actually create more trades. We can be a safe venue where the whole market can come to us and say: this is what I want to do, and they know that information is completely safe. They’re not going to be disadvantaged at all by giving us that information.”

Big Orders

The firm defines block size trades as those larger than 10 percent of a stock’s average daily turnover. Institutional money managers can trade in the dark pool all day, while brokerages will be allowed to participate at four specified times. Costs for brokers will be lower than the 0.5 basis point fee charged by ASX’s Centrepoint, the largest dark pool in Australia, and institutions will pay a commission of about 10 basis points, Klinger said.

“The top tier brokers have said ‘you look a little bit like a competitor,’ which is completely understandable,” he said. “We’re getting good response from the second-tier brokers. They are often faced with a hard-to-trade order in a midcap or smallcap stock that they can only really take to the market, and they get front-run a lot of the time. This is another liquidity source for them that they can’t currently access.”

Some 55 asset managers have said they would like to use the venue, while 13 have signed the necessary documentation to begin trading Australian securities, he said. Klinger aims to start the platform with about 30 participants by the end of November, he added. Pershing LLC will handle clearing and settlement of trades in Australia.

Stock worth A$6.6 billion ($4.7 billion) changed hands through ASX Centrepoint in August, according to the most recent data from the exchange, with A$4 billion through its block-trading product.

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