Investment bank Deutsche Bank’s Autobahn Equity electronic trading business has launched Super X, a dark liquidity-seeking algorithm, in the US and Europe.
The algorithm applies a quantitative approach, which allows clients to manage their access to dark liquidity using Deutsche Bank’s real-time analytics. The algorithm ranks dark pools’ performance in real-time relative to the order attributes and urgency level specified by the client.
According to the firm, the algorithm allows clients to manage the trade-off between quantity and quality of executing in the dark. For example, a trader wanting to execute quickly may send his order to a wider number of pools, but risk greater information leakage in the process.
“We try to balance that trade-off depending on the clients’ objectives and level of urgency,” Andrew Morgan, head of Autobahn Equity in Europe, told theTRADEnews.com. “Every electronic message that gets sent ultimately has the potential to leak information to the market. Super X allows customers to get a level of protection that may be lacking in typical dark algorithms.”
Super X incorporates anti-gaming logic, which uses correlation techniques to check for abnormal pricing activity. Depending on the attributes of client orders, Deutsche Bank may decide not to participate at certain price points in certain venues.
The need for the buy-side to trade safely in the dark has been made more apparent by the proliferation of non-displayed trading venues in Europe, which Morgan estimates now number around 40, and the various linkages forged between pools.
“The more venues you go to, the greater the probability of information leakage that could result in adverse selection in a dark pool,” said Morgan. “Ultimately when you are using a dark strategy, you are more likely to have a large order, so it is all the more important that you leverage features that allow you to control the order and control information leakage around the order as much as possible.”
All of Deutsche Bank’s algorithms are integrated with the bank’s smart order router, which adapts the execution of trades to the available displayed and non-displayed venues.