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When Size Matters

High-speed trading now accounts for the majority of activity on the nation's stock exchanges.

In that realm, milliseconds no long matter. Now, microseconds do. Soon, microseconds will give way to nanoseconds. And Oleg Olovyannikov, the chief technology officer at Tudor Investment Corporation, says he's now getting pitches for new products that confer picosecond advantages.

But fund managers look at investments with much longer lenses. Like months and years. A trillionth of a second does not and should not matter. But size can.

Where do you go to move a 100,000 share block and not get whacked by opportunists trying to figure out and affect what you're doing?

Nasdaq OMX Group tried to solve that with a lit market it launched in late 2010, PSX. As in price-size exchange.

There, orders with the largest size get priority over the orders that arrive first. This was "a fundamental change to market structure," said chief executive Robert Greifeld.

The idea was that if you put in a sell order for 50,000 shares, you could set a minimum quantity to be sold in a trade. Could be 500. Could be 5,000. Could be all 50,000.

So far, PSX hasn't been wildly successful. Its share of market is only about 1.3%. And it hasn't said yet whether it has reached its original target: An average trade size of 500 shares.

And if you tally up all Nasdaq trades on the Nasdaq Stock Market as well as its BX and PSX exchanges, the average trade size is ... 211.6 shares.

That's not that different from the slicing and dicing that is going on in dark pools, where the identities of firms are kept private and details of trades only get reported after the fact.

The biggest of these in May was Credit Suisse's Crossfinder, with average daily volume of 125.9 million shares, according to Rosenblatt Securities. The average trade size, though?


Another big pool is Knight Link, which handled 81.4 million shares a day in May. Its average trade size? 275 shares.

But there is one - one - dark pool where size does seem to matter. That is Liquidnet, an electronic marketplace built specifically for block trading. Liquidnet concentrates on executing orders in sizes that matters to mutual fund and other asset managers.

Its average trade size in May? 43,309. Its average daily volume was only 15.2 million shares. That's 12% that of Crossfinder.

But if trade size matters, that doesn't matter.

And it also shows that, if large blocks do matter, venues can be created and maintained that respond to and will meet the demand.

Rosenblatt's president, Joe Gawronski, said in March that "the block is dead." Average trade size in dark pools has dropped 48% in the last two years. And algorithms can chop up and efficiently process even large orders of more than 100,000 shares, in fractions of seconds

So, if size does matter, it's now your call.