Liquidnet's Tie-Up with NYSE Euronext

A new partnership between Liquidnet and NYSE Euronext announced earlier this week promises to connect corporate issuers with institutional investors and make their interactions more efficient through technology.I think the deal is an interesting combination for several reasons. The deal could give corporate issuers more information on how their stocks are trading in Liqudnet's block crossing network and the venues operated by NYSE Euronext. It also ties together a leading block-trading venue with a global source of corporate listings.

I'm not sure how the new corporate access product works, but we are told that Liquidnet InfraRed proprietary desktop application, accessible via NYSE's 'NYSEnet' system, aggregates institutional demand, news sentiment and block trading data. Presumably, corporate issuers of primary and secondary offerings of securities could reach out to the Liquidnet community comprised of 582 buy-side traders that are on the platform. Investor Relations Officers and CFOs would gain insights into how their stocks are trading, in all the public venues and perhaps in Liquidnet's negotiated wholesale market. But moving beyond the trading desk, the new corporate access business expands the value of the Liquidnet community by adding portfolio managers and analysts as well as corporate issuers, noted CEO Seth Merrin in the release. Commenting on the deal, Sang Lee, managing partner at Aite Group said, in an interview: "It's going to give more transparency to the issuer for block trading data in their stock. If anyone could subscribe to this data, it just adds another layer of market intelligence in terms of how much block trading is occurring off exchange," said Lee. That kind of information is important, notes Lee.

But let's not forget Liquidnet has been a competitor to NYSE Euronext especially in matching huge U.S. block equity trades and has been successful in expanding that model to Europe, Asia and Canada. The NYSE formed a joint venture with alternative trading system, BIDS Trading, (New York Block Exchange or NYBX), to go after the block trading market. NYSE Euronext operates SmartPool, a Pan-European joint venture for block trading that competes with Liquidnet Europe. On the other hand, NYSE Arca is a streaming liquidity provider (SLP) to Liquidnet's H20 retail-size execution product, so there is a precedent for this cooperation, notes Aite Group's Lee.

In addition, NYSE Euronext is a leading global listing venue, a place where companies go to raise capital, and that it's a source of IPOs and tying into that pipeline for IPOs could be a strategic move for Liquidnet.

So the fact that Liquidnet would want to partner with an exchange is not so strange. In fact last June at the SIFMA Technology Management, Liquidnet CEO Seth Merrin talked about the need for co-opetition between exchanges and dark pools to bring together the fragmented retail size order flow and wholesale securities markets together. Could there be a bigger deal in the works here?

At the end of the day, exchanges and Liquidnet probably view the broker-dealers more as a direct competitor than themselves going against each other, commented Lee. "The combination of Liquidnet plus another exchange would be an interesting combination, something that wouldn't conjure up comments, such as Are You Out of Your Mind?" says Lee. At the end of the day, Lee suggests that the fast growing broker-owned dark pools are more of a threat to the exchange operator than Liquidnet.resumably, corporate issuers of primary and secondary offerings of securities could reach out the Liquidnet Members - 582 buy-side traders that are on the platform. Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio