Abstract

The pursuit of anonymous market liquidity despite significant fragmentation has bedeviled the buyside trading community since the advent of decimalization. Brokers have also become more selective in how they commit capital, posing an additional challenge for executing block trades on a timely and cost-efficient basis. The author, a Director of Sales and Trading at Investment Technology Group, Inc. (ITG), explores the use of dark pools of liquidity, such as ATSs (Alternative Trading Systems), to bring buyers and sellers of block sizes together. He also explains the steep downside to ATSs: increased fragmentation, which can require additional time, money and resources to track down hidden pockets of liquidity, as well as greater cost of execution. The author portrays the current state of liquidity fragmentation, examining the direct and indirect costs for traders. He then objectively explores ATS Aggregators as one solution, looking at both the positives and the pitfalls, as well as recommendations for avoiding these negative scenarios in the future. <b>TOPICS:</b>Exchanges/markets/clearinghouses, accounting and ratio analysis, statistical methods

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