Former Fidelity chief Edward ‘Ned’ Johnson III had the idea for Luminex. Photo: Brian Snyder/Reuters
BOSTON—The most exclusive new club on Wall Street opens for business next week and there are a few things you won’t find: members with under a billion dollars or high-frequency traders.
Those are among the rules laid out by the founding members of Luminex, a private trading platform designed to give the world’s largest asset managers a new place to buy and sell large blocks of stock.
Large asset managers have complained in recent years that exchanges are now rife with high-speed traders who rapidly change the prices of their bids and offers to take advantage of heightened interest in a stock, cutting into profits of the firms that place them. “Dark pools,” a type of private trading venue originally designed to help institutions anonymously trade, have had their own problems with keeping client orders secret.
In response, last year a group of firms led by Fidelity Investments began work on a trading platform that would provide what it calls a cheap and secure solution. In addition to Fidelity, other Luminex owners include BlackRock Inc., the largest money manager in the world by assets, Invesco Ltd. and Capital Group Cos.
Luminex is looking to potentially win market share from other dark pool operators that focus on block trading, such as Bids Trading LP, Liquidnet Holdings Inc. and Investment Technology Group Inc. Those venues account for more than 200 million shares traded every week, according to the latest data from the Financial Industry Regulatory Authority.
In interviews at the Boston offices of Luminex Trading & Analytics LLC, executives detailed for the first time how the platform will operate. Luminex is technically a dark pool, too. But it stands apart from the other roughly 40 dark pools because of strict membership requirements, a low-cost structure, and rules that encourage trading large amounts of stock in each transaction, analysts said.
Here is how it works:
Luminex only allows institutions with a billion dollars or more under management and a “long-term investment strategy,” so that means no high-frequency traders or quantitative hedge funds.