Instinet, LLC is about to launch a new U.S. dark pool that aggregates orders from multiple buy and sell-side counterparties and then consolidates them into block-size trades.

The patent pending trading system, known as BLX, Instinet's fifth dark pool operating in U.S. stocks, accumulates orders from multiple parties, but waits until certain volume thresholds are met before executing a point-in-time cross. BLX has been in the works for more than a year and has been operating in "soft launch" mode. BLX recorded average trade size of 15,719 shares per day through September 2009 whereas Continuous Block Crossing (CBX), Instinet's largest US dark pool, had an average trade size of 348 shares in September.

"What we've done here is combined continuous and point-in-time crossing," explained Jonathan Kellner, President, Americas, at Instinet, in an interview with Advanced Trading. While in the continuous crossing space orders come in and every time you match a buyer and seller they trade immediately, in a point-in-time cross, people are told when to send their orders in," said Kellner. "We are waiting for a volume trigger when we have a meaningful amount of volume on both sides. That kicks off the point-in-time cross," said Kellner.

Under BLX, orders coming in from algorithms will be pooled and consolidated into blocks once the stocks meet certain volume thresholds. A stock whose average daily trading volume is under 100,000 shares, would have a volume threshold of 1,000 shares; a stock whose ADV is 100,000 shares-to-1 million shares, would have threshold of 2,500 shares and a stock whose ADV is over 1 million shares a day, would have a volume threshold of 5,000 shares. BLX snaps the midpoint of the national best bid and at a random time during the 10-second pricing window.

After the first match occurs, Instinet sends out an indication-of-cross or IOX, (in symbols only), notifying participants that it has completed a cross in a particular name. Order flow responding to the IOX is combined with any residuals from the first match. A second match will occur at the same price as the first. There is no volume trigger, but the market must be in range of the match price to execute "If the price in the market moves, we don't do a second print," said Kellner. Kellner said Instinet has automated what used to happen on sell-side desks that identify two sides of a trade. "That doesn't go on any longer," says Kellner.