The quarantining of America has led to many changes, but one in particular is the effect on the financial markets. Certainly, volatility has increased, but with closure of the trading floors, especially the New York Stock Exchange, what else has changed?
Mike Gallagher, director of institutional trading and block desk at TD Ameritrade Institutional, says he was just discussing that question with his wife. “No one is on the floor at the New York Stock Exchange right now … typically there are guys down there pit trading using handhelds and making markets, but none of them have been there for over a month now. It’s a true testament to our market structure … that there hasn’t been a blip throughout all this. … We’ve seen fast markets and volatility is up, but it’s really amazing how efficient the markets have run.”
The block trading desk is a microcosm of how the business has continued to work — and markets trade — despite floors being closed and traders working from home. Gallagher has 16 traders on his desk that handle RIA business, and despite its continuing growth, he finds business still is getting done as efficiently.
Started in 2010, the desk’s business has surged with the growth of ETFs, he says. And today they’ve seen more business during this volatile period, including an increase in new advisors using their services. Indeed, the number of unique advisors who traded with the block desk doubled between the first quarters of 2019 and 2020, according to Gallagher.
His team was built to proactively encourage RIAs to use the desk to trade any sized order. The desk’s team asks at least two market makers to compete for the business. According to the firm, the desk has within minutes executed more than $2 billion in trades across 22 ETFs that hold more than 10,000 in individual securities with an average expense ratio of about 7 basis points and a total trade cost of 2.4 basis points.
Further, in another example, the company says the desk saved one RIA and its clients $2.6 million in trading costs while executing 66 million ETF shares. Gallagher adds they determine the savings by how much they save the client on the spread. “That’s a competition-created savings,” he says, adding that RIAs could go directly to a liquidity provider, but getting two or more bids such as their desk does on a regular basis improves the savings. Further, they submit the client post-trade reports and report performance by each market maker, which determines who does and doesn’t get the desk’s business going forward.
Big ETF Push
The block trading desk originally began to handle all of the firm’s internal business. As ETF volume grew, so did the desk as it began taking on that business. It went through several iterations in dealing with stock loan buy-ins, large retail orders, margin buyouts in only liquid securities and so on. But the institutional desk kept sending over RIAs that needed extra help, so in 2014 the desk was split off to just handle RIA business. They began with roughly 200 RIA clients and today have over 3,000 that use the desk throughout the year.