Citi has completed an overhaul of its electronic product in Asia and plans to complete the roll-out process to Asian clients by the end of this year.
“We have spent a lot of time focusing on market microstructure and the trading characteristics of securities and have fed that analysis back into the product. We’ve never been shy to dedicate resourcing into that,” said Ben Valentine, head of Citi’s pan-Asian electronic execution. “A lot of the enhanced logic that we have built has now been ported over and our strategies now look at the markets in a much more dynamic and intelligent way.”
Citi said that it has been seeing stronger performance in strategies on the back of these changes. The overhaul is being communicated to Asian clients and they now have to give their consent to changes. This process also involves training and customers have to get comfortable about how the product works before being granted access.
Material changes to algorithms take more time nowadays due to the electronic trading rules of Hong Kong’s Securities and Futures Commission (SFC). As 2015 approaches, Hong Kong sell-siders are now going through the annual SFC certification once again.
“It is easy for people to down tools and only focus on regulatory issues or react to market initiatives, but if you don’t continue to evolve your product, then in a couple of years, you aren’t going to be competitive,” said Valentine. “This business is an arms race, because if you don’t invest and you don’t improve, then you will be left behind. We have found the right balance between being innovative and managing all the other things that must be done day-to-day, such as the regulatory side. ”
The upgraded Citi product uses proprietary signals to determine whether a price is a good price to trade at, if liquidity is adequate, when to cross a spread and when not to do so.
“A lot of the intelligence we’ve been building in has made the strategies more acceptable for a wider range of securities,” he said. “Everyone has built platforms that look at the fundamentals of trading, but this overhaul takes that to the next level, where strategies are employing that extra level of intelligence in fast moving, unpredictable markets. You should be able to use strategies that work across a wide range of securities and that has been our intention. Although there will always be stocks that certain strategies shouldn’t be used for, perhaps due to liquidity or low trading frequency issues.”
Recent changes to Citi’s algorithmic trading suite include predictive modelling of order book events combined with its FairValue pricing logic and using any order book liquidity imbalance to predict upticks and downticks. It also employs anti-gaming logic, in order to avoid detection and gaming by other algorithms. It can also take advantage of contracting spreads.
“We’ve introduced a new version of our liquidity-seeking algorithm, ‘Dagger’,” said Valentine. “We rolled out another version of this strategy that has more intelligent logic around decisions that impact when it crosses a spread, how much it should post, how it signals when it thinks the market is moving away and whether or not it should become more aggressive and take more liquidity.”
Citi also offers a dark pool in Asia, named Citimatch, with which the algo suite interacts.
“We’re also constantly looking at ways to optimise how the platform posts and how it finds liquidity with our dark pool, which may not be one of the biggest dark pools but is certainly one of the better quality ones,” said Valentine.