Algorithm development is increasingly focused on providing a service that helps the buy-side to become liquidity providers and adopt high-frequency trading (HFT) tactics.
Last week, agency broker ITG launched its Smart Limit Algorithm (SLimit) to help institutional investors trade passively across multiple markets.
The tool will enable asset managers to compete with HFT firms to supply liquidity by using similar techniques seen in their proprietary algorithms.
Jeff Bacidore, head of algorithmic trading at ITG, said: “High-frequency traders are already big providers of liquidity to markets and our more sophisticated clients wanted to be able to do the same thing.”
HFT has stepped into the gap left by investment banks which have largely withdrawn from proprietary trading and market making due to pressures on balance sheets and the impact of regulation, such as the Volcker Rule in the US, that limits their ability to trade on their own accounts.
Another agency broker, Instinet, made a similar move in early February with its MAKE algorithm, designed to enable the buy-side to act like a market maker while also avoiding predatory flow.
Speaking to theTRADEnews.com, Instinet Europe’s head of electronic trading, Ben Springett, said: “The buy-side are facing a number of challenges as a result of limited liquidity. MAKE would help firms provide liquidity to the market and draw other flow towards them.”
Bacidore said finding natural liquidity and avoiding potentially toxic flow from HFT market participants was a key concern for institutional investors.
“The buy-side knows that it can be challenging to find natural liquidity and often they have to pay a premium for that. SLimit will let them take a large order and work it passively to take advantage of that liquidity while keeping track of what is happening in real-time,” he said.