State Street Exits Its Dark Pool, Selling BlockCross to Instinet

  • Pool caters to big investors seeking to trade with each other
  • Deal expected to close in July or August; no terms disclosed

Instinet LLC is adding another dark pool to its business, buying State Street Corp.’s private trading venue.

The brokerage owned by Nomura Holdings Inc. agreed to buy State Street’s BlockCross ATS, according to a release Thursday. The deal is expected to close in July or August. Terms of the transaction weren’t disclosed.

Although Instinet already owns 10 private pools in North America, Europe and Asia-Pacific regions, the purchase will give it a different kind of venue focused on pairing up big money managers’ large trades. The deal comes as looming regulation in Europe seeks to limit how much trading occurs in dark pools -- though certain kinds of large orders are exempt from those rules.

Even though BlockCross operates only in the U.S., the model could prove useful as financial firms prepare for sweeping European regulation called the Markets in Financial Instruments Directive II -- or MiFID II for short. The rule change will affect almost every aspect of Europe’s financial markets when it takes effect on Jan. 3, 2018. One example: Each dark pool will only be able to handle 4 percent of overall trading in an individual security, and total dark trading will be restricted to 8 percent of overall volume in each stock -- but larger dark-pool orders avoid the caps.

While firms including Investment Technology Group Inc. and Liquidnet Holdings Inc. have specialized in block trading for years, other groups and exchanges are introducing new projects catering to large trades.

BlockCross traded more than 15 million shares of the largest U.S. stocks in the last week of May, according to the most recent data reported by the Financial Industry Regulatory Authority, making it one of the smaller American dark pools.

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