Apr 10, 2012
Algo customisation the new norm – ITG
Off-the-shelf algorithms are now considered the “exception”, according to agency broker and technology provider ITG,
with most buy-side firms insisting on customising strategies to suit their
trading style.
According to Jeff Bacidore, head of algorithmic
trading at ITG, growing comfort with algorithms among buy-side traders has led
to increased demand for greater flexibility of strategies.
“It’s getting to the stage where
out-of-the-box algos are the exception,” Bacidore told theTRADEnews.com. “Clients
either come to us with specific requests or we give clients exposure to an
algorithm’s parameters so they can adjust them on the fly.”
While customisation of algorithms is
nothing new, recent advances to market structure have increased the buy-side’s
desire for more tailored strategies.
Bacidore said buy-side firms that run quant-driven funds are requesting more passive market interaction, such as only
buying at the bid and selling at the offer, while others are paying closer
attention to dark pool interaction, an issue that has been heightened after one US dark pool was recently charged with mishandling client order flow.
“Clients now have specific views on the
dark pools they want to trade in and minimum quantity limits,” he added. “The
buy-side is also paying more attention to high-frequency trading and figuring
out how best to use algorithmic strategies to handle this type of flow.”
Greater use of customisation capabilities
by buy-side traders will continue to grow and is likely to become the norm for all providers in
the near future, said Bacidore.
“We are moving to a scenario where traders
will be capable of setting obvious parameters relating to volume and price
limits themselves, but then work with sell-side partners for more complex and
specific customisations,” he said. “This is the main factor driving the
increased popularity of brokers’ execution consulting services.”
ITG recently expanded its algorithmic suite
with Dynamic Open, a strategy that the broker claimed was the first to use
order imbalances to drive participation in US opening auctions. The strategy
uses imbalance information in combination with historical analysis to decide
the optimal time to participate in open auctions at Nasdaq OMX and the New York
Stock Exchange, which can account for up to 4% of day’s trading volume.
Anish Puaar
+44 (0)20 7397 3817
anish.puaar@thetrade.ltd.uk