Liquidnet Rolls Out Million Share-Plus Block Trading Strategy

Liquidnet said it’s recently introduced SuperNatural Adaptive Optimum (AO) strategy has become its most effective strategy for executing large block orders in excess of one million-plus shares, and that average order sizes climbed to over 1.7 million shares.

The AO strategy is the first Supernatural strategy to incorporate the probability of internal block crosses within Liquidnet’s liquidity pools while tapping public markets when time and market impact conditions are optimal.

According to Liquidnet, the results of the block trading algorithm improve as order sizes increase, due to an optimization process that anticipates the size and inter-arrival times between crosses in order to design an optimal trading schedule.

Due to the success and adoption of million-share orders, volume for Liquidnet’s Supernatural strategy suite has grown 186 percent over the same period last year, to over 24 million shares per days, according to the company’s release.

“Our member trading results with AO have shown that the larger the order, the better the performance,” stated David Fellah, Liquidnet’s head of quantitative strategy and analysis, the team that designed AO. Member trading results with AO have shown that the larger the order, the better the performance,” he continued, which benefits all of Liquidnet’s members, many of whom are the largest players in the buy-side community. “Performance improves with size due to the dependency between the magnitude of the order and the probability of a cross against our natural pool of liquidity,” explained Fellah in the release. The ability of members to execute large orders and interact with the deep pool of natural liquidity is of paramount importance to their performance, stated Fellah.

In addition, Liquidnet noted that the success of its Supernatural products suite has attracted new Streaming Liquidity Partners (SLPS) joining H20. There are now 26 SLPs connected to Liquidnet H20, including two new SOPs, OES Marketgroup and Citi’s Lava Technology. In the Q1 of 2009, Liquidnet’s SLP’s collectively contributed nearly 10 billion shares of additional liquidity daily in US equities for Liquidnet members, according to the company’s release.

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