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.

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.

«