NEW YORK — Despite the proliferation of "dark books" on Wall Street, institutional investors are in no rush to switch to the bulge-bracket firms from pure agency brokers for the automated crossing of blocks of shares off-market.
No data are available to track the volume handled by two dozen new order-crossing networks that do not display quotes — hence their moniker. But anecdotal evidence indicates a number of these youngsters still lack significant institutional order flow at a time when agency dark books Liquidnet Inc., ITG Inc. and Pipeline Trading LLC keep experiencing volume growth.
Executives at a few Wall Street firms have told analysts their dark books match significant volume, but it is impossible to distinguish whether this comes from institutional orders or from the firms' proprietary trades.
For institutional investors, the slightest risk of information leakage — including after the trade is done — remains a concern despite the Chinese walls that separate a firm's block-matching facility and its proprietary trading desk. For instance, matching 100,000 shares on a Wall Street firm's crossing network could signal to that broker that another batch is waiting in the wings.
Larry Peruzzi, vice president of Boston Co. Asset Management LLC in Boston, said "the information leakage is a major issue."
"The comfort level may not be quite there," he explained. "Brokers are trying to have two products out: proprietary trading and a black box. There are Chinese walls, but for as long as these firms are going to be in both of those businesses, people are going to have their doubts."