Global Posit started a crossing network, which electronically matches buyers with sellers, three months ago. It has 15 clients, including County NatWest Investment Management, and operates once or twice a week.
The system is similar to one operated by Instinet, a subsidiary of Reuters. They offer an alternative to market-makers, at the heart of the Stock Exchange system.
Crossing networks are well established in the US, where they are said to account for up to half of all share trades. Although increasingly popular in the UK, they account for only a fraction of all share trades.
Market-makers fear the emergence of crossing networks will reduce the volume - and liquidity - of business on the main market, making it more difficult to deal in large volumes.
Phil Davies of Global Posit, a joint venture between Barra, a software firm, and Jefferies, a stockbroker, said: 'We provide an alternative source of liquidity. We are complementary to the exchange.' But another insider said: 'Of course we compete with the exchange.'
On Tuesday mornings, fund managers using Posit enter into their computers a list of stocks they want to buy and sell. If another fund manager enters an exact match, the deal is transacted at the mid-price - between bid and offer - shown on market-making screens.
Market-makers complain that crossing networks use their prices without putting business their way.
Some large fund managers also operate internal networks, enabling cross trades in-house. One firm says half its share trades are carried out in this way.
In each case the share trades are reported to the exchange.
The trades are off-market in so far as they are outside the normal market-making system, but on-market in so far as the volumes are included in the Stock Exchange totals.
The Stock Exchange is also facing competition from Tradepoint, which plans to operate an order-driven service that would allow fund managers to enter the details of trades they want to carry out directly into the system without the intervention of brokers.Reuse content