What is a Block Trading Facility (BTF)?
A block trading facility, commonly offered by futures exchanges, allows parties to bilaterally engage (buy / sell) in large transactions off the public order books to avoid an outlier that could temporarily affect the price of that security. .
- A block trading facility, commonly offered by futures exchanges, allows parties to conduct large transactions bilaterally off the order books to avoid an outlier price point that could temporarily affect the price of that security.
- Transactions carried out in a block trading facility are typically between two parties, prices are set with certainty, and execution occurs without delay.
- A block trading facility is typically a type of brokerage firm, or a specialized brokerage firm department, dealing primarily with large exchanges. His clients range from corporations and banks to insurance firms and academic funds.
Understanding Commercial Block Facilities (BTF)
Transactions in a block trading facility are made between two parties, prices are set with certainty, and execution is done without delay. Institutional investors use block trading services for transactions involving a large number of shares.
When stocks are traded on a block trading facility, they are traded in large lots. Lot sizes can vary, but merchants are generally not allowed to add multiple separate orders in an effort to meet minimum volume requirements. Securities traded through a block trading facility are less subject to market fluctuations because they are not visible in the public order books of the exchange, so this type of trading is more like a private contract between two parts.
A block trading facility is typically a department of a brokerage firm, or a specialized brokerage firm, dealing primarily with large trades. Clients can range from corporations and banks to insurance companies and academic funds. Some investors and analysts try to follow the money or stay ahead of market trends by watching blockbuster activity.
Because they are not settled on public order books, block deals are less likely to cause major price changes. However, due to the nature of block trading facilities, block trading activity can have a considerable effect on financial markets. Bulk trading should be reported immediately to the bulk trading facility, and the trading data is usually released along with the daily trading volume.
Although block trades are not settled on the exchange’s order books, they are typically reported along with the exchange’s public trading data.
How a Block Trading Facility (BTF) Works
Block trading facilities keep traders on staff who are well versed in managing trades of this size. The staff provides a bulk trading facility with special access to other merchants and other businesses that allow the business to trade these large quantities more easily. When a large institution decides to start a bloc trading, it will contact the staff of a bloc trading facility, trusting that they will collectively help get the best deal.
Once an order is placed, brokers at a block trading facility connect with other brokers who specialize in the specific type of security being traded, who then complete the large order through various sellers. Large orders can be divided into smaller parts, allowing an institutional buyer to settle orders on behalf of many clients at once.
For example, if Bank of America wants to start a block trade of 1,000,000 shares at $ 10 per share, it will contact a block trading facility for assistance. Block house clerks break down the big trade into manageable chunks, in this case that can result in 100 smaller blocks of 10,000 shares, at $ 10 per share. Each of the blocks will start with an independent broker, keeping market volatility low.
Example of a Block Trading Facility (BTF)
Many public exchanges also maintain bulk trading facilities for large clients. The Australian Stock Exchange’s Block Trading Facility traded more than one million contracts in 2020, according to exchange reports. While these trades are settled outside of ASX’s order books, they are still reported alongside the rest of the exchange’s market data.
NASDAQ, the second largest stock exchange in the world, also has a BTF called NASDAQ Private Markets. This specialized market, aimed at institutional and accredited traders, reported operations worth $ 30 billion in the first three months of 2021.