The feature can be enacted while trading with a benchmark strategy is already taking place.
The "contingent order" type at first will only be executable on Goldman Sachs' Sigma X dark pool and the BIDS alternative trading system. But it will be available for any venue that adopts the order type and adheres to its rules.
The binding nature of the "contingent order" type distinguishes it, Goldman said, from "indications of interest,'' which are non-binding. The order type also is distinguished by its “one-to-one” nature: A single sell order gets matched to a single buy order or vice versa.
At first, the order type will adhere to the Securities and Exchange Commission definition of a block order: 10,000 or more shares; or $200,000 or more in notional value of the trade.
The defining characteristic will be the ability for traders to track a benchmark such as Volume Average Weighted Price (VWAP) while simultaneously hunting for all of the algorithm’s remaining shares in the form of a dark block, according to David C. Johnsen, vice president from Goldman Sachs Electronic Trading
Users of the feature will have their orders simultaneously placed at multiple dark pools that accept contingent orders as well as other dark pools with large minimum execution sizes defined. The order will sit there until a matching buy or sell order arrives, Johnsen said, or the order is withdrawn.
As long as the order is active, a match that meets its specifications will be binding.
This distinctly distinguishes BlockStrike, Goldman Sachs noted, from "indications of interest" from dark pools, which are non-binding, are not for block size and can involve many parties.
Such IOIs can be used to test dark markets for the presence of matching orders, but do not commit the party placing the indication from fulfilling it.
The order type is part of a new algorithmic strategy called BlockStrike, introduced Tuesday by the Goldman Sachs Electronic Trading unit of Goldman Sachs Execution and Clearing.
That mathematically driven execution scheme will automate the process of placing large block trades across multiple dark pools, including but not limited to Sigma X and BIDS.
With BlockStrike, a market participant can search for blocks in dark pools, while working the order with other logic already in use.
"In the past, traders had to decide whether to commit their order to an algorithm or try to negotiate a block in a dark pool,'' by manual or voice means, said Greg Tusar, managing director and co-head of GSET. "With BlockStrike, our clients now have the ability to accomplish both simultaneously -- and all they have to do is check a box" on their trading screen.
That box checks off the initiation of a BlockStrike search. The user can also set the price, at the same time, next to the checkbox.
BlockStrike then places the contingent order in participating dark pools, with whatever the client determines is the minimum execution size.
Goldman, in making the announcement at its 200 West Street headquarters, noted that 125 million shares a day get crossed in Sigma X, with 13 percent of those shares being traded in blocks
Securities Technology Monitor