As a rule of thumb, a broker generally issues an upgrade to an execution algorithm to its institutional investor client base once every nine months. That doesn’t sound like a very intensive development schedule, either for the broker or for the providers of execution management systems (EMSs) that host broker algorithms for easy desktop access by the buy-side. But if you have to take account of refinements to whole suites of algorithms, by as many as 40 brokers, the pace seems a little less relaxed. And then if you consider that many brokers offer algorithms across multiple asset classes and in an ever-widening number of geographic markets, the task of getting those algorithm upgrades to the buy-side suddenly becomes a time-consuming and high-pressure activity.
For this reason, a growing number of EMS vendors have embraced ATDL (algorithmic trading definition language), a technology developed by FIX Protocol Limited to accelerate the distribution of broker algo upgrades to the buy-side by simplifying the process by which they are integrated into trading systems. Stuart Breslow, CEO of Townsend Analytics, the firm responsible for the RealTick EMS, views ATDL as a source of competitive advantage to brokers that also benefits the buy-side. “If a broker sees a change in the microstructure in a particular market for example, and wants to tweak an algo to take advantage of that, ATDL can help get that algo out to users quicker than its rivals,” he says.
ATDL compresses many of the stages required to integrate an algorithm into an EMS for buy-side consumption. Historically, says Breslow, the process of turning a broker’s FIX interface specification (typically 60+ pages of dense text) into a new algorithm fully integrated on RealTick included nine stages (some repeated) from sale to client software upgrade, spread across anything from one to four months. With EMSs often judged on their ability to get new trading functionality to the buy-side as quickly as possible, receipt of a new specification from a broker was the starting pistol for EMS vendors to embark on a multi-stage marathon, run concurrently with similar projects initiated by other brokers.
But use of ATDL has enabled RealTick to amalgamate five processes (from enrichment screen configuration to end-to-end testing) into one and reduce the core of the upgrade process to between one and four days. With ATDL, an algo upgrade is contained within an XML file that includes four key elements: enrichment screen layouts; strategies, associated parameters, and parameter limits; strategy parameter dependencies and FIX tags associated with strategies and parameters.
RealTick has further reduced the implementation effort via its Broker-Dealer Extranet, a self-service facility which, among other things, enables brokers to manage the algorithm upgrade process themselves. Using an ‘Algo Manager’ tool, the broker can send a XML file to RealTick, control the upload process, manage its parameters and determine its look and feel before approving the new algo for testing by RealTick’s FIX transition team, which includes order testing with the broker, ahead of the go live.
Some 15 of the 40 brokers currently with algorithmic certifications in RealTick have their algos represented in ATDL. “The effort required from the broker to create an ATDL file is minimal – and should they require it we can actually help them and produce this,” says Breslow. “Around half of RealTick’s broker partners, using ATDL with us, use our Broker-Dealer Extranet to administer their algo enrichment screens. If a broker’s algos are in ATDL, that gives us both the flexibility to have a rapid turnaround and deployment.”
Once an algorithm is integrated into RealTick using ATDL, the broker can use its self-service functionality to add upgrades ‘on the fly’. This means upgrades to already registered algorithms can be effected by brokers in a matter of minutes. “If a client wanted a broker to give it the ability to opt out of the opening and closing auctions on an exchange for example, we would need to add six lines in an XML file and upload it,” explains Breslow. “That’s where the power of ATDL comes in.”
ATDL has had a slower-than-expected take-up since its beta testing phase in Q3 2007. Part of the reason is that a number of the banks that participated in its development with FIX suffered staff dislocation during and after the financial crisis, causing the rollout of ATDL to lose some momentum. And some other brokers were unable to spare the resources to catch up wit the pioneers.
Continued resource pressure at some sell-side firms has made the self-service functionality in RealTick’s Broker-Dealer Extranet very popular with brokers, says Breslow, because it helps them add value to clients with minimal development costs or delays. “In a trading environment such as the one we’ve experienced this year, with thin liquidity and low volumes, ATDL gives an opportunity for brokers to retain their edge,” he says.
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