What Is a Block Positioner?
A artifact positioner is simply a dealer who, successful bid to facilitate a customer's ample acquisition oregon merchantability that could disrupt the market, takes positions for their ain relationship successful the hopes that they mightiness yet crook a profit.
- A artifact positioner is simply a trader who, successful bid to facilitate a customer's ample acquisition oregon merchantability that could disrupt the market, takes positions for their ain relationship successful the hopes that they mightiness yet crook a profit.
- Block positioners purpose to unload the presumption quickly, and typically usage hedging strategies—such arsenic arbitrage techniques oregon options—to trim the hazard associated with positions.
- Traditionally, premier brokers person played the relation of artifact positioner, agreeing to perpetrate superior to their clients (such arsenic hedge funds) successful bid to facilitate artifact trades for them.
Understanding Block Positioners
Traditionally, prime brokers person played the relation of artifact positioner, agreeing to commit capital to their clients (such arsenic hedge funds) successful bid to facilitate artifact trades for them, though a fewer different broker-dealers person besides carved retired a niche successful executing artifact trades. (A premier brokerage is simply a bundled radical of services that concern banks and different fiscal institutions connection to hedge funds and different ample concern clients that request to beryllium capable to get securities oregon currency successful bid to prosecute in netting to achieve absolute returns.)
Block trades (also called artifact orders) are ample orders successful the underlying information (bonds oregon stocks) that a lawsuit seeks to execute successful its entirety. Because of their ample bid size, these trades whitethorn artificially determination the market. It's besides imaginable that marketplace participants who get upwind of the tendency to commercialized a ample artifact whitethorn front-run the bid (to the artifact trader's detriment).
Therefore, if a artifact commercialized is attempted successful the unfastened market, traders indispensable signifier caution. Consequently, artifact trades are usually conducted done an intermediary—i.e. a artifact positioner—rather than a hedge money oregon concern slope purchasing the securities usually (as they would for smaller amounts).
Types of Block Positioners
Sometimes, the artifact positioner tin beryllium an inter-dealer broker (IDB), who takes an agency relation and tries to cobble unneurotic a radical of counterparties—each of which is consenting to enactment successful immoderate information of the artifact commercialized (but without committing immoderate capital). This is particularly applicable successful options markets, wherever a trader whitethorn question to bargain oregon merchantability thousands of contracts.
Other times, the artifact positioner is simply a client's premier broker (usually an concern slope oregon ample fiscal firm) who volition hold to instrumentality down the full commercialized astatine once. Sometimes, these trades volition beryllium executed done dark pools oregon electronic connection network (ECN) matching systems (so arsenic not to disrupt the regular marketplace enactment by introducing a ample trade).
Sometimes, a premier broker volition inquire a specialized artifact positioner situated connected the level of a banal exchange—known arsenic a wholesale broker—to "cross" a ample fig of shares of banal astatine a pre-determined price, which whitethorn beryllium antithetic from the existent marketplace price. Often, these wholesale brokers volition run connected "away exchanges," specified arsenic the Philadelphia Stock Exchange.
Regulations Governing Block Positioners
Block positioners tin instrumentality connected sizeable hazard successful speech for the profits they seek. Any steadfast progressive successful artifact positioning must:
- Register arsenic a broker oregon trader with the Securities and Exchange Commission (SEC) and besides with the New York Stock Exchange (NYSE) if it is simply a subordinate firm.
- Must beryllium successful compliance with Rule 15c3-1 for market makers and person a minimum disposable superior of $1 million.
- Engage successful buying, oregon selling short, from oregon to a lawsuit a block of banal with a existent marketplace worth of $200,000, oregon more, to facilitate a merchantability oregon acquisition by that customer.
- Seeks to merchantability the shares comprising the artifact arsenic rapidly arsenic imaginable and conscionable different regulatory conditions anterior to the merchantability of that block.
The trader takes connected the hazard of the securities successful bid to assistance wide the commercialized for the seller. Block positioners purpose to unload the presumption quickly, and typically usage hedging strategies, specified arsenic arbitrage techniques oregon options, to trim the hazard associated with positions.