Instinet Debuts Options CBX Dark Liquidity Pool

Agency brokerage Instinet recently went live with its options dark liquidity pool, Instinet Options CBX, Instinet officials tell SST.

"This was the next logical step in leveraging our infrastructure to build out a full options offering," says Jonathan Kellner, president, Americas, at Instinet.

The brokerage built the new platform using its existing core matching technology along with the technology it gained from the acquisition of Torc Financial last year, he adds.

The new dark liquidity pool, which has been active for the past two weeks, operates as a continuous match throughout the day and clears the resting orders from its order book at the end of each trading day. Users enter live orders into the system and if a natural match exists in the system, Options CBX will use its smart order routing capability to send both sides of the trade to the options exchange with the most advantageous crossing environment.

"When you are exposed in the options market for a second, one side of a trade could be stepped into up to 60 percent of the time," explains Brendan Logue, options product manager at Instinet. "We would prefer to be able to maximize the percent fill on the buy and sell side."

Pricing on the dark liquidity pool is determined by the price printed at the executing exchange. "That price will be realized within the CBX," says Logue. "There is also a potential for price improvement at the exchange as well if someone decides to step in front of the trade," he adds.

Instinet officials hope to draw liquidity from their retail and institutional clients. "At times we have seen order sizes from 30 to 50 options contacts," says Kellner. "Other times, we have seen orders for 100 to 200 contracts or greater." However, Kellner declines to cite the current volume number on the new platform.

The options market is primed for dark liquidity pools such as Options CBX as well as other dark liquidity trading systems like Pipeline's Archangel and Ballista Securities' self-named alternative trading system (ATS), says Andy Nybo, principal and head of derivatives research at industry analyst firm Tabb Group. "These are realistic solutions given today's market structure because you still need to bring the orders onto an exchange floor to trade."

Users can connect to Options CBX through its FIX gateway, which uses version 4.2 of the messaging protocol. The brokerage has also integrated the venue as a routing destination for is Newport execution management system (EMS) and Instinet Trading Portal, along with its Torc Financial legacy trading front ends, Top and TradeSpeed.