DEFINITION of Block Positioner
A block positioner is a securities dealer who will take either a long or short position in order to accommodate a seller or buyer of a large block of securities. The dealer takes on the risk of the securities in order to help clear the trade for the seller. Block positioners aim to unload the position quickly, and typically hedge their risk exposure with options, or by selling the securities short.
Traditionally, prime brokers have played the role of block positioner, agreeing to commit capital to their clients (such as hedge funds) in order to facilitate block trades for them, although a few other broker-dealers have also carved out a niche in executing block trades.
BREAKING DOWN Block Positioner
Block orders are large orders in the underlying security that a client seeks to execute in its entire size. Typically a block order is for more than 10,000 shares of stocks, or more than $200,000 worth of bonds. Because of their large order size, these trades may artificially move the market, or market participants who get wind of the desire to trade a large block may front-run the order, to the block trader's detriment. Therefore, If a block trade is attempted in the open market, traders must be careful. Therefore, block trades are usually conducted through an intermediary, known as a block positioner, rather than a hedge fund or investment bank purchasing the securities normally, as they would for smaller amounts.
Sometimes, the block positioner can be an inter-dealer broker (IDB), who takes an agency role and tries to cobble together a group of counterparties each of which are willing to participate in some portion of the block trade, but without committing any capital. This is especially relevant in options markets where a trader may seek to buy or sell thousands of contracts. Other times, the block positioner is a client's prime broker (usually an investment bank or large financial firm) who will agree to take down the entire trade at once. Sometimes, these trades will be executed through dark pools or ECN matching systems so not to disrupt the regular market activity by introducing a large trade. Sometimes, a prime broker will ask a specialized block positioner situated on the floor of a stock exchange, known as a wholesale broker, to "cross" a large number of shares of stock at a pre-determined price, wich may be different from the current market price. Often, these wholesale brokers will operate on "away exchanges" such as the Chicago Stock Exchange or Philadelphia Stock Exchange.
Block positioners can take on considerable risk in exchange for the profits they seek. Any firm involved in block positioning must register with the Securities and Exchange Commission (SEC) and also with the New York Stock Exchange (NYSE) if it is a member firm. Under Rule 15c3-1 for market makers, block positioners must have minimum available capital of $1 million and meet other conditions while unloading the securities block.