Macgregor and Liquidnet Tussle over Contract

Macgregor's contract with Liquidnet is up for renewal in April and both technology companies have not been able to agree on new terms. The contract dictates the fees Liquidnet pays Macgregor for sending the institutional block trading system orders. If the parties fail to renegotiate the contract, then, as of May 1, Macgregor's order management system will no longer route orders to Liquidnet, according to one buy-side source who requested anonymity.

The dispute reportedly centers on the transaction fee that Liquidnet pays Macgregor for routing order flow to the alternative trading system. The buy side source says that Liquidnet wants to pay Macgregor less for its order flow and "Macgregor refused the adjusted OMS support fee." Details on the exact fees could not be determined by press time.

A Liquidnet spokesman says, "It is our policy not to comment on pending client/vendor negotiations. Our current contract with Macgregor is up for renewal, and it is our goal to reach terms with Macgregor that will not adversely impact any of our two companies' mutual customers. We are, however, deeply sorry that our members have been unintentionally brought into this situation." He decline to comment further.

A Macgregor spokesman emphasized the good relationship between the two companies, but he declined to comment on "any dealings with Liquidnet." He says, "I can tell you that today, we have a good relationship with Liquidnet. We've had it for years. It's definitely been a win for our clients. It's been a win for us, it's been a win for Liquidnet."

The buy-side source adds that "Liquidnet is asking clients that use Macgregor's OMS to contact Macgregor to protest their refusal and to accept the new, lower terms from Liquidnet."

If the disagreement is not resolved, it could impact buy-side clients who rely on Macgregor's OMS to route orders to Liquidnet.

One sell-side trader says that Macgregor's buy-side clients account for about half of Liquidnet's order flow, while other Street estimates put the figure somewhere between 30 and 70 percent.

"I'd be shocked if they didn't work out their differences because they each have too much to lose by not working with the other," says the sell-side source. He adds that "Liquidnet is a fairly popular ATS (and) Macgregor clients want access to Liquidnet." On the other hand, Macgregor is where the order flow is- it's the number one OMS for Liquidnet order flow," adds the source.

According to two brokerage firms that receive order flow from investment firms via Macgregor, the OMS vendor charges brokers a transaction fee. Both sources say the fee is either based on the amount of share volume or a percentage of the commission that the buy side firm is paying to the broker or ATS.

Macgregor operates a leading buy-side order-management system network that allows investment managers or traders to route order flow to brokers, ECNs and other execution destinations.

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