What is a block positioner?
A block positioner is a dealer who takes a position in his account in the hope of ultimately making a profit to facilitate large-scale purchases or sales of customers that can disrupt the market.
- A block positioner is a dealer who takes a position in his account to facilitate large-scale purchases or sales of customers.
- Apart from preventing potential market turmoil, block positioners seek to benefit from their actions.
- Block positioners aim to unload positions quickly and typically use hedging strategies such as arbitrage techniques and options to mitigate the risks associated with positions.
- Traditionally, prime brokers have agreed to act as block positioners and invest capital in clients (such as hedge funds) to facilitate their clients’ block trades.
Understand block positioners
Traditionally, prime brokers have agreed to act as block positioners and invest capital in clients (such as hedge funds) to facilitate block trades, but some other broker-dealers also perform blocks. Transactions that have opened up a niche when doing.
A block trade, also known as a block order, is a large order of underlying bonds or stocks that the client attempts to execute as a whole. Due to their large size, these transactions can artificially move the market. Traders in the wind of block orders may try to accelerate sales. This is an illegal and unethical move that can damage the company that handles the block trade.
Block trading on the open market requires attention on the part of traders. They are usually done through intermediaries such as block positioners rather than hedge funds or investment banks.
Types of block positioners
In some cases, the block positioner can be an inter-dealer broker (IDB). The broker takes on the role of agency and attempts to bring together a group of counterparties. Each counterparty is prepared to participate in part of the transaction without investing capital. This is common in the options market where traders try to buy and sell thousands of contracts.
The block positioner is also the client’s prime broker and agrees to carry out the entire transaction at once. These transactions can also be performed via a dark pool or electronic communication network (ECN) matching system. This prevents the disruption of normal market activity caused by the introduction of large-scale transactions.
Prime brokers may ask a professional block positioner (called a wholesale broker) on the stock exchange floor to “cross” a large number of stocks at a pre-determined price. Current market price. Often, these wholesale brokers operate on “away exchanges” such as the Philadelphia Stock Exchange.
Regulations to manage block positioners
Block positioners take a considerable risk in exchange for the profits they seek. Companies involved in block positioning should do the following:
- Register as a broker or dealer with the Securities and Exchange Commission (SEC) and, in the case of member firms, with the New York Stock Exchange (NYSE).
- In accordance with market maker rule 15c3-1, the minimum available capital is $ 1 million.
- Engage in buying and selling blocks of stock with a current market value of $ 200,000 or more from or to a customer to facilitate the sale or purchase by that customer.
- We will sell the shares that make up the block as soon as possible and strive to meet other regulatory requirements before selling the block.
The dealer bears the risk of securities to help the seller clear the transaction. Block positioners aim to unload positions quickly and typically use hedging strategies such as arbitrage techniques and options to mitigate the risks associated with positions.