Wouldn't you please scratch my block-trading itch?

It's no secret that I'm not a big fan of electronic block-trading networks, simply because I believe that their existence goes against the core foundation of the medium that they exist within. Actually here and now would be the perfect place and time to declare that we probably have seen the zenith of those networks as an idea that has reached its prime and things should start pointing downhill from here.

Crazy talk you might say, with Liquidnet easily sailing beyond the billion dollar cap mark and venture funds salivating at the prospects of getting a piece of that action, you must be quite the fool to even go there!! Hey someone somewhere had to call the top and I just did.

I'm doing so for two reasons, one of them is as obvious as they come and that is; in my book of market wisdoms you must always, always bet against a closed-garden-variety incumbent of any industry that was built upon the concept of open access. I can't remember how many times I argued against the prospects of companies like AOL, CompuServe, Prodigy and the likes, as resellers of private-island-lots in that oversized pond called the web. You can chalk it all to basic island-phobia but even back when AOL had more followers than the Catholic Church, I lost my voice telling everyone that their business model was definitely going the way of the dodo! Like buying frenzies and pyramid schemes, that concept ends when you are the last one standing in line.

The second reason has to do with the concept of disruptive technologies and their impact on progress. Crossing-networks should for the most part be viewed as a disruptive technology. Or by definition a technological compromise for a bigger problem. These networks do not represent a cutting edge concept and they most definitely do not represent a conceptual advancement in how capital markets should work. They assume a vacuous existence where close neighbors engage in a perpetual garage-sale moderated by the enterprising family up the street. Sooner or later everyone has to take a drive to the mall and contend with elbowing the common folks for a spot in a cashier line.

It used to be that advocates of those networks would almost always invoke the "e" word (as in eBay) in reference to how auction markets should be like. They don't bother to reflect on the fact that it didn't take eBay long to realize that as a "network" it could not survive and only as a true "marketplace" it did.

It's hard for crossing-network fans to explain that for the most part they are driven by fear and contempt. Fear of those prying vultures and contempt for all of those liquidity disturbers, day traders and odd-lot scavengers. Whether through apathy, complacency or ignorance they forget that they are as much responsible for how the market behaves as the next guy!

Electronic block trading is an itch and no matter how hard or long you keep on scratching, if you like the outdoors, you still have to contend with those pesky mosquitoes.

As for the networks, you can never discount the abilities of luminaries such as Liquidnet's Seth Merrin to realize the fragility (measured in market years) of his incarnation. However, unless he can pull that mainstream transformation from a single-purpose-network into something more organic like say a full-participation ECN or maybe even a bona fide exchange, he would be well advised to borrow a page from the AOL book of tales.