A new paper from Fidessa has highlighted how smart order routing (SOR) approaches need to change in light of an evolving market.
The paper’s author, Will Winzor-Saile, has explored how the world of science, specifically quantum physics, can provide a valuable insight into the new trading landscape, intertwined with the drive for low latency and a broker's 'need for speed'.
"A new approach to SOR is needed that understands the reliability of the data and analyses market and microstructure trends", said Winzor-Saile, electronic execution product specialist at Fidessa. "Firms that do this can add real value through their SOR and provide their clients with price improvements as well as more efficient alpha capture."
The paper also shines a light on how SORs interact with dark pools and the effects of hidden liquidity on achieving the best trading result.
"In the equities space the multi-market landscape is well established,” Winzor-Saile added. “Before any order is sent to a market, the trader or algo looks at all available pools of liquidity before deciding on the optimum venue. This decision used to be simple and was based on which venue had the best price or the most volume. But as markets have evolved, firms can no longer rely solely on visible information to make these decisions."