Liquidnet Offers Privacy, Efficiency in Trading

April 12, 2001 ( - A number of US money management firms have started using Liquidnet, an electronic system that allows them to bypass Wall Street brokers when buying and selling blocks of stock.

That could impact an estimated $100 billion a year in commissions to brokers, as money managers try to lower costs of trading.

The Liquidnet platform lets institutional investors trade anonymously through a system integrated with their existing trading software, according to Bloomberg.

Secret “sauce”

Institutional investors now pay 40 cents per share in costs for large-company stock, and just 77 cents per share for small-cap stocks, according to Plexus Group.  Much of that cost comes from the difference between the impact on the price of a stock once word gets out that a large investor is trading.

On the other hand, institutions that trade over Liquidnet pay a commission of just 2 cents a share, rather than the 5 cents traditional brokers charge.

More than 70 fund firms have signed up to use the system. Money managers must have a minimum of $2.5 billion in stocks under management to participate.

On the first day, 3.85 million shares traded over Liquidnet, with an average trade size of 51,475 shares.  Compare that with Nasdaq’s average trade size of 744 shares.

Among others, Liquidnet’s advisory board currently includes:

  • Putnam
  • AIM
  • T. Rowe Price