NEW YORK Fidelity Investments' trading arm said on Tuesday it launched a new invitation-only "dark pool" for block trades that allows institutional investors to interact with orders from Fidelity's brokerage business.
The Boston-based firm said its dark pool - an alternative trading system (ATS) that lets investors anonymously trade large blocks of stock without tipping their hand to the broader market - does not include high-frequency traders or broker dealers, creating a secure environment for large transactions.
"One of the strengths of equity market structure today is the balance of a variety of constituents. This is a piece of that overall puzzle focusing on a certain desire from a certain set of clients," said Brian Conroy, president of Fidelity Capital Markets.
BLOX, or Block Liquidity Opportunity Cross, anonymously matches institutional orders against the order flow of Fidelity's brokerage businesses, without publishing bids and offers, before the orders are routed to the market. It is an extension of Fidelity's CrossStream ATS, which started in 2006.
"It's something institutional clients are asking for in a world that has seen the average trade size in the average S&P Financial stock shrink dramatically in the last 15 or 20 years," Conroy said.
Fidelity's retail brokerage business trades around 535 million shares a day, on average, and 34 percent of those shares are considered block size - 10,000 shares or more. The Boston-based firm also handles order flow from other firms.
All orders in the dark pool are executed at mid-point, cutting out intermediaries and eliminating information leakage and the potential for predatory trading practices, Conroy said.
Fidelity began BLOX as a pilot on October 1, with around 15 institutional clients.
"The feedback was strong enough that we felt the ability to go out loud with it and start to have further discussions with more participants," Conroy said, adding that Fidelity may look to cap the number of institutional clients in the dark pool at around 100.
Fidelity's dark pool will compete against similar venues owned by firms such as Credit Suisse, Goldman Sachs, ITG, and Liquidnet.
(The story corrects name of dark pool to BLOX from BLOXSM)
(Reporting By John McCrank; editing by Andrew Hay)