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BlackRock Seeks To Become The Same Monopolistic Trade Internalizer For Stocks, As Goldman Is For Derivatives
In what is the latest death knell for the traditional Wall Street non-monopolistic sell-side business, last night we read in the FT, with little surprise, that ETF behemoth (following its purchase of Barclays Global) and arguably the world's largest asset manager, bigger even that Pimco, Blackrock is launching an internal trading platform which will compete with the traditional wall street institutional sales and trading model. In essence, courtesy of its massive internal stock inventory, BlackRock will be able to internalize buyer and seller order flow, allowing for much cheaper transaction costs, and create an open "dark pool" to paying customers, which will soon become the go to marketplace for all. And thanks to the cheap transactions costs, BlackRock will be able to pull even more order flow from traditional trading venues, creating an economy of scale borne out of its increasingly greater monopoly status in stocks. In essence, Wall Street is about to see yet another monopoly power stretch its wings and become the go-to flow trader for equities. And this should work quite well: after all it is none other than Goldman who already cornered the derivatives and fixed income markets, courtesy of the first monopolistic land grab, which just so happens, involved the insolvency of Bear and Lehman.
From the article:
BlackRock plans to develop a “new world-class global trading platform across the firm”, according to an internal memo seen by The Financial Times. It has appointed Minder Cheng, who is joining BlackRock as part of its acquisition of Barclays Global Investors, to oversee its development.
The platform will “fully realise the cost efficiencies and trading opportunities across all asset classes as we become one of the largest trading operations in the world”, the memo states.
Once BlackRock’s acquisition of BGI is completed sometime in December, the group will have about $3,000bn in assets under management.
The plan is still in its early stages, but its outlines are already clear. If some BlackRock clients are selling a security and others are buying, the group can “cross” those trades internally without going through Wall Street. BlackRock does not intend to take any fees for this service, since the whole point is to save its clients money, according to people familiar with the plan.
“Why pay such a large bid-offer spread?” another person familiar with the plan said, referring to the price gap between buyers and sellers. “The large volume gives BlackRock the opportunity to bundle trades.”
And in continuing with our cynical view on things, we hope it is now more than clear why Blackrock was recently petitioning to be excluded from Fed supervision on being a "systematically important" organization. After all, soon becoming the go to venue for stock trading internalization brings with it no threats to the system at all: plus if and when a 666 sigma event happens, BlackRock will merely be added to the list of companies that are the proud recipients of endless taxpayer bailouts.
For those who wish to read a recent and exhaustive profile of traditionally under the radar BlackRock, we recommend the following BusinessWeek article: "The Collosus of Wall Street"
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Barclays used to reckon their "internal" deals made them one of the largest stock markets in the world so now I guess they become no.1...there is no hope for mere mortals...
I'm new to trading, what's a down market? I have never seen one. Seems everyday is an up day with zero risk to the downside.
I'm sure you'll meet my son very soon. He trolls around and posts a bunch of dumb charts from yahoo finance because he doesn't have bloomberg. Long story short the dow will probably hit 20,000 this year and BAC will quadruple in the next two months.
u so sessy
As Robo's mom, and you can relax as we are all curious, did you drop him on his head as a baby? Any concussions in his youth we should be aware of? Any other problems (ADD, etc)?
Just mild retardation. That's all.
"Monopoly"
"High Frequency Trading"
"Dark Pool"
"Goldman"
"The Banksters"
"Unregulated"
"Global Warming"
"Israel"
These are some of the words that trigger some kind of hormone in the brain, with the result that all logical thinking is disabled and the victim becomes subject to a debilitating hysterical fit of unthinking sloganeering.
bearster triggers
law and order
regs
mooslims
Paper is dead, who cares.
Let them trade back and forth amongst themselves for eternity.
Remember Enron Online? It was essentially the same thing that Black Rock is planning, but, for wholesale energy trading. Enron was counterparty to every single trade through the platform. No one but Enron had any idea of exactly how trades were matched and settled behind the scenes. The biggest value to Enron was seeing order flow coming before anyone else and front running it when markets started moving quickly. Many traders and end users got sacked with losses and non-delivery of physical positions when the company went down.
Yea...but the Fed won't let Blackrock fail...
I long for free markets......
Fidelity has taken stabs at this kind of thing over the years but BRock is that much bigger.
Once you reach a certain size in the marketplace you have certain advantages (and problems too), no way around it . Exploiting them is the easy part.
Back in the mid-90's when OTC traders were forced to display customer limit orders inside the holy market maker 1/4 spread...a lot of smaller market makers went out of business. The argument was that the little guy "won" because now he's getting up to 25c better prices on his trades. What happened is that the biggest fish in the pond, Knight Trading, ended up garnering such a high percentage of order flow from a previously more fragmented B/D network, that they could game price movement in stocks, especially the open and close. It was sort of like counting cards - if you know what 32% of the cards are for sure...that's a huge advantage.
All financial and securities markets should probably have some sort of market share limits (what the hell ever happened to regional deposit share limits for banks?). Otherwise too much risk is concentrated in one place and the advantages the mega banks/asset managers/brokers have over the marketplace are just obvious. Also TBTF becomes a given as far as the government is concerned too.
I've said it before: There is no market.
This is just another step in the progress toward 'enlightenment' thrust on all of us by the monetarists in Washington. In their playbook, we already took the first step in 1987 from free markets to Plunge Protection Team. In the '90s this was followed up by The Greenspan put and resulting bubble which hitched the Fed wagon irrevocably to the stock market. When that degree of control failed (in part because you can't cut rates below zero), in March 2009 the stock market became the ward and exclusive purview of the Fed. Henceforth the stock market was still about national ego, but it now it became a surreptitious way to recapitalize corporate America post-crash. Record secondary offerings allowed access to essentially free money, otherwise half the S&P 500 would have been insolvent. Winners and losers were picked by the Fed. 2010 was all about follow-through to support ailing corporations. Greenspan and Bernanke went on record about supporting the market.
So now the final step in the evolution toward state run capitalism: government-backed front organizations that allow the appearance of being private, like a Chinese or Venezuelan oil company. BlackRock can never be allowed to fail. Even if it means you and your family need to cough up the money to pay for it.
+ 10
Well said sir!
to understand their reasoning (87') the market is fundamentally healthy, this is a liquidtyissue (some put sellers were caught in the downdraft) if the market is going to be higher a year from now, why should we allow it to fall now, as that forces liquidations, and reenforces the boom bust cycle which the FED has been trying to obviate, (term out of existence), and create a market which marches linearly higher each year. and once the cycle is broken, the markets can project much farther into the future, ergo higher valuations, more money, and a stronger economy.
But is Blackrock adjtunct to the cause, or in direct competition?
boom bust cycle which the FED has been trying to obviate, (term out of existence), and create a market which marches linearly higher each year. and once the cycle is broken, the markets can project much farther into the future, ergo higher valuations, more money, and a stronger economy.
....you're confirming my theory that There is no Market, it is just an outpost of state run capitalism. It's just a way for bankrupt corporations to raise money and be kept alive (surreptitiously provided by the Fed) and a measure of national ego. Now here's why that leads to a weaker economy, not a stronger one, and hurts the country:
-The market rewards failure and discourages risk. The opposite of the intended purpose under free market conditions.
-The Fed (politicians backed by big money) get to pick winners and losers (state run capitalism where cronies rule and affect your life).
-Lack of creative destruction: failed, inefficient, unprofitable and anachronistic corps get revived like corpses (AIG) or kept alive beyond their near-death (Citi and the concept of financial supermarket) and many more. They're allowed and encouraged to cheat (use creative accounting, short selling not permitted etc...) And that in turn leads to............
-Obstacles to new entrants. The worst outcome of all, new ventures, new ideas, young players, risk are all selceted against in a crony system. They move offshore, reinforcing the bad in the system.
All that leads to a moribund economy with diminishing opportunities and where the politically connected profit not from competition but the opposite: anti-competitive marketplaces that allow them to profit form failure and cheating.
and eventually we become less innovative, but we aren't close to that yet. I imagine that America could become the global superpower, if we would simply stop giving away the store. (i sometimes think this is what the GOP secretly wants, but maybe Dems want it too, world hegemony) . and to add to your point about the death of the markets, let's speculate it really isn't our fault, we let a lot of players onto the field, who didn't understand the game, and they are dragging us down to the same level as their centrally planned economies. Free (as in market) doesn't necessarily mean open. If you have a free market and you let cheaters compete with you, then you end up living by their rules. A guy with a real job shouldn't compete with prison labor, or people who live in environmental hell holes, under oppressive police tactics to suppress everything. In sum Blackrock looks line another brick in the wall, of the state planned economy which we are being led to believe is a free and open global market, and that somehow, they, the laggards in both technology and democratic principles should be given equal status and we must adapt to their methods.
Whatever, let them monopolize the already dead markets which depend totally on $10 billion BennieBux daily just to keep it zombie-trudging along. Big deal.
Merging Monsters is going to be the theme of next year, criminal syndicate Wall Street bankers making millions helping to create monopolistic creatures which will ALSO hurt Average Joe. We have done bailouts to preserve the status quo, and the next empty fix for the corrupt system [we should be purging right now] will be merger mania.
None of this will be good for America, but this crew of corrupt bankers and corrupt politicians do not care about America except to preserve those parts that butter their bread.
Mergers will simply be another stepping stone to revolution which will finally arrive when Average Joe simply defunds both big business and big government.
So wake up already, Average Joe. Take a step today. Return all the Christmas crap well-intentioned folk gave to you last weekend. Close your wallet. Cut services. Shop discount stores for necessities...and starve the beast.
I'll front-run DavidRicardo here:
one of the two great market mysteries are solved. what is a block trade? and why isn't everyone obliged to run their shares through the same market (one share at a time if necessary?) Blackrock is going to see that everyone (of their clients) has the benefits of block trading.
what it looks like from here is an alternative to the obsolete market maker specialist system, and the electronic, where there is no one backing the bid. To that purpose, should the market collapse, traders will be moving their money to this exchange.
we raised the question, suppose the next flash crash is the real thing, would the NYSE just cancel all the trades? here's your answer, they may not, but Blackrock probably will. And will the government back them, absofuckinglutely... If they can keep juggling BB's and the PPTs assets higher, this is a pure shot at becoming the leading financial assistant to the UST. Or is direct competition.
as for the mystery of short selling..
I still long for free markets.....
Guess I'll go try the fx today.
Maybe I can front run a headline.
Just mild mannered custodians. What could possibly go wrong? Systemically ridiculous. Either way, resolving an implosion seems impracticable.
sheesh, what happened to the internet enabling markets to be open source and more free/competitive? How can it be possible we are going BACKWARDS?
too much crony capitalism and corrupt government choking off the real free unfettered market.
I wonder how long they will be able to hold an order in search of an internal match? It is already hard enough for me to be matched with a buyer or a seller at a given price. There's nothing like having an order that will not fill even when it is at a better price than the market is reporting and this will make it just that much more difficult/dangerous/ruinious.
Blackrock has been my best 'Hindenburg Omen', bar none - rather, I should say, to be more precise, that the frequency with which I see Blackrock mentioned and/or active correlates strongly with an economic and/or equity crisis.
From the Blackwater IPO several years ago, which almost exactly precipitated the equity market collapse, to their role in the largest single real estate bust in the U.S. (Stuyveysant Town - a 5.2 billion dollar bullshit deal that incurred losses of about 4.6 billion - and counting; Bernanke probably bought the note and stuffed into Maiden Lane for his friends)...
Tishman, BlackRock hand over Stuy Town keys...when I hear 'Blackrock', my ears perk up.
Thanks for Blackrock Tyler.
I had just looked up some Blackrock positions in different sectors out of curiousity. Yep, they're huge.
These institutional monarchs are the real powers behind the throwns. Nothing has changed in 100 years.