A large group of investment management firms have agreed to participate in a new equity-crossing network that will be exclusively targeted at institutional investors who trade European stocks. Dubbed E-Crossnet, the crossing network-scheduled to go live by the first quarter of next year-will initially be owned and operated jointly by Barclays Global Investors (BGI) and Merrill Lynch Mercury Asset Management (MLMAM). Eventually, however, ownership stakes in E-Crossnet will be made available to all of the participants in the network.
Andrew Skirton, chief investment officer of BGI Europe, says E-Crossnet will cover equities in all of the countries belonging to the European Monetary Union-as well as British stocks. At first, the network will perform two crosses a day, but Skirton emphasizes that E-Crossnet's crossing frequency is open to change.
Currently, he says that BGI and MLMAM are speaking with other potential E-Crossnet participants to determine the "best frequency of crosses" and the best times to make crosses.
To date, 19 buy-side money managers have signed on to trade via E-Crossnet, including BGI, MLMAM, J.P. Morgan Investment Management, Morgan Grenfell Asset Management and Prudential Portfolio Managers U.K. Ltd. In the near future, those 19 firms will have the opportunity to buy a piece of E-Crossnet Limited-the new company that BGI and MLMAM are setting up to oversee the day-to-day operations of E-Crossnet.
"We have an established proposal whereby BGI and MLMAM's ownership will be diluted through time," says Skirton. He says the details of the equity sharing proposal are still being hashed out and declines to specify when BGI and MLMAM will begin to offer ownership stakes to participants. However, Skirton adds that is likely that the ownership structure of E-Crossnet will change "very quickly." Moreover, he says that the largest participants in E-Crossnet will have the right to purchase the largest stakes in the business.
One of the ways in which E-Crossnet will function is by matching investor orders at the mid-point of the bid/ask spread for specific stocks. But Skirton says that may not be the only methodology E-Crossnet uses to cross trades. "We may also offer crosses whereby the price that's formed and taken from an exchange will be, maybe, the volume weighted price average for a stock for the day," he says.
Skirton expects E-Crossnet to compete, on some level, with Instinet Corp.'s crossing network and the Investment Technology Group's Posit for Europe system. But he says that E-Crossnet is unique because its "sponsored exclusively by institutional investors and run exclusively for institutional investors." Unlike with competing systems, Skirton says, participants in Crossnet have "full knowledge that orders will be crossed with other investment management firms."
From a personnel perspective, BGI and MLMAM have already filled two key executive posts for E-Crossnet Limited. Sir Michael Jenkins has been named chairman of the company, and Nigel Foster has been appointed chief executive officer. Jenkins, who is currently retired, is a former chief executive officer of the London International Financial Futures and Options Exchange. Foster currently works as head of transition management at MLMAM.