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A Transparent, Cost-Effective Approach to ATS Platforms - Convergex’s Millennium

Institutional Investor interviewed Eric W. Noll, president and CEO of Convergex, on his firm’s industry leading ATS platform and strategies.

Why are alternative trading systems important to institutional investors?
Alternative trading systems (ATSs) help buyers and sellers find counterparties for their transactions, providing access to different pools of liquidity and opportunities for price discovery with limited information leakage.

What seems to be the primary concerns regarding ATSs?
In the past, there has been some discussion that ATSs may foster conflicts of interest where broker-dealers give preferential treatment to their own platforms or certain market participants over others. Their structure may encourage, as opposed to reduce, latency arbitrage.

How is Convergex addressing these concerns?
We have focused on returning ATSs to their fundamental roots as a disclosed, cost-effective alternative to the public exchanges. We are committed to discovering liquidity on behalf of our institutional clients without revealing their trading activity to the rest of the marketplace. We also provide opportunities for price improvement without exposing a client’s trading interest or taking advantage of any other market participant.

Tell us about your industry-leading platform, Millennium.
Millenniumsm is built with state-of-the-art technology that aggregates more than 8 billion shares of available liquidity in just under 6,000 symbols daily.* We mandate that all orders matched by Millennium are only executed at the mid-point of the bid-offer spread, providing clients with a price improvement of half the listed spread.

How do you minimize information leakage?
Millennium minimizes information leakage by using direct feeds from all 11 exchanges to determine the bid-offer spread, rather than a consolidated Securities Information Processor (SIP) data stream. Using a high performance market data processer for all 11 exchange feeds prevents problems like front-running or latency arbitrage, when a trading firm has a few milliseconds to move prices in other venues against an order being executed. We also found that using the SIP for even just one exchange, while using direct feeds from all of the other exchanges, significantly reduces the quality of the NBBO and introduces latency arbitrage opportunities. We also don’t allow co-location of trading or order-entry engines with Millennium. Instead, all subscribers’ data streams are routed into our data center from a different location.

What is your average trade size?
The average size of a trade on Millennium is just over 330 shares, about twice as large as the average ATS platform trade. We are also seeing a steady increase in block trades. Almost 20% of our volume on Millennium now involves trades between 2,000 and 10,000 shares, which helps clients execute transactions more quickly and efficiently and with less chance of information leakage.

What are clients saying about your platform?
We are receiving very positive feedback regarding Millennium as it continues to meet the evolving needs of institutional investors, broker-dealers and other clients. They like the fact that we route their trades in such a way that they can get the best pricing without giving a preference to our ATS. It is a top priority for us to minimize conflicts and provide the most efficient execution for our clients.

Any additional comments?
We believe there is real value in ATS platforms that provide price improvement opportunities and cost-efficient execution with strong safeguards to prevent unfair trading practices. We also believe Convergex’s Millennium is one of the most comprehensive and accessible independent alternative trading systems in the market. Convergex will continue to innovate and explore opportunities to expand our offerings globally and enhance execution quality for our clients.

Contact Information Convergex Execution Services 212-259-5583

About Convergex: Convergex is an agency-focused global brokerage and trading related services provider. With clients’ interests as the top priority, Convergex delivers comprehensive solutions that span global high-touch and electronic trading, options technologies, prime brokerage, clearing, commission management and beyond. Headquartered in New York with a presence in several other locations including Atlanta, Boston, Chicago, Orlando, San Francisco and London, the company serves nearly 3,000 clients accessing over 100 global market centers.

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