Blackrock Creating a Global Trading Platform

BlackRock to launch trading platform


BlackRock, the asset manager poised to become the world’s largest money manager with $3,000bn under management, is preparing to create its own global trading platform – a move that could challenge the business at the heart of many Wall Street groups.

BlackRock plans to develop a “new world-class global trading platform across the firm”, according to an internal memo seen by The Financial Times. It has appointed Minder Cheng, who is joining BlackRock as part of its acquisition of Barclays Global Investors, to oversee its development.

The platform will “fully realise the cost efficiencies and trading opportunities across all asset classes as we become one of the largest trading operations in the world”, the memo states.

Once BlackRock’s acquisition of BGI is completed sometime in December, the group will have about $3,000bn in assets under management.

The plan is still in its early stages, but its outlines are already clear. If some BlackRock clients are selling a security and others are buying, the group can “cross” those trades internally without going through Wall Street. BlackRock does not intend to take any fees for this service, since the whole point is to save its clients money, according to people familiar with the plan.

“Why pay such a large bid-offer spread?” another person familiar with the plan said, referring to the price gap between buyers and sellers. “The large volume gives BlackRock the opportunity to bundle trades.”

The plan will probably be first introduced for trading in stocks, where pricing is more transparent than in fixed income.

BlackRock executives have insisted that their plan is not meant to marginalise Wall Street, adding that the firm will still depend on banks to provide liquidity. But the new platform does serve as a sign that the buy side is increasingly flexing its muscles when it comes to paying fees to trade securities that often have very small margins and rely on large volumes to achieve profitability.

The high costs of developing new technology have hindered other attempts to develop such platforms. But BlackRock Solutions has been a pioneer in developing technology, which generally has been the province of the sell side. But now that is no longer an obstacle, these people add.

Larry Fink, BlackRock’s founder, lashed out at the “luxurious” trading profits of the Wall Street firms during a conference call in July.

http://www.ft.com/cms/s/0/0709a7c6-9f02-11de-8013-00144feabdc0.html?nclick_check=1

 

I believe this is already the practice at numerous firms from Cantor Fitzgerald to Schwab...nothing new here. For example when you put a trade through Schwab less then 5% of them hit any exchange..This is just another attempt to circumvent exchange fees.