Global financial services firm Deutsche Bank has launched an automated equity trading system in Hong Kong that allows client orders to be matched against other client and internal orders. The platform, called Deutsche Bank Automated Trading System (DB ATS), is being launched concurrently with a dark liquidity-seeking algorithm, SuperX, that has been available in the US and Europe since 24 March 2010.
Both DB ATS and SuperX provide access to Hong Kong equities and are available either through Deutsche Bank’s equity sales desk, portfolio trading desk or Autobahn Equity, its electronic equity trading platform.
Mark Davis, head of equity and equity-linked execution for Asia-Pacific, said that DB ATS was being launched in Hong Kong to take advantage of a growth in trading volumes as firms look to increase access to Asian markets. In addition to liquidity, controlling market impact and efficiency of execution Davis said that implicit cost reduction should be an advantage for clients. “Spreads in the Hong Kong market are relatively wide compared to other markets, 18-20 basis points is an average across Hong Kong names. ”¨Hence, the opportunity to reduce execution costs is higher than in other markets.”
The algorithm SuperX will connect clients to DBATS and Chi-East, a joint venture between trading venue group Chi-X Global and the Singapore Exchange, which is due to launch in Q3 2010. Agreements are currently being made with other venues and are expected to be disclosed shortly.
In Europe and the US SuperX offers users a choice between reaching lots of venues and minimising information leakage. As there are fewer venues in Asia the algo cannot offer the same choice and so it will offer anonymous trading on the usually displayed Hong Kong market, explains Greg Lee, head of Autobahn Equity, Asia at Deutsche Bank. “SuperX in Asia will give traders control over either accessing just DB ATS, DB ATS and other dark venues, or all of these venues in addition to taking liquidity from the main market. In Asia, the paradigm is slightly different to Europe as we have less dark liquidity. Adding the ability to use one algorithm to trade without showing your hand on the displayed market gives traders an extra level of control,” he says.
He continues, “If you look at the order book for Hong Kong stocks you will see a long list of broker names on both sides of the spread. Many firms are reluctant to post their orders on the book because their trading interest appears and people can analyse what you’re doing and work against you. With SuperX you have the opportunity to find dark liquidity as well as take liquidity from the main exchange without ever displaying the stock you are trading on the displayed order book.”
The SuperX algorithm uses a quantitative approach to anti-gaming to prevent client orders being traded at artificially adverse prices. SuperX also aims to improve clients’ access to liquidity via a pool ranking model that ranks liquidity on a real-time and historical basis to determine optimal dark sources for a given order; a smart allocation model that balances optimal fill probability versus the total cost of execution; and performance reports that allows clients to monitor the efficiency of their execution.