A new algorithm developed by GETCO will leverage the Chicago-based electronic market maker's trading strategies to give buy-side clients access to high-frequency liquidity untapped by other algo providers.
The GETAlpha algo, unveiled earlier this month, is designed to help investment institutions minimise order detection and information leakage in the US equity markets via access to the expertise and technology that GETCO has developed for its proprietary trading business.
“Institutions that have identified the execution process as a major part of their ability to grab alpha – such as index-tracker funds – are likely to be the biggest users of GETAlpha,” Daniel Coleman, head of client services at GETCO, told theTRADEnews.com. “The algo will try and capture as much liquidity as possible, including some high-frequency liquidity that other algos might be reluctant to source. It is by no means focused solely on high-frequency liquidity, but it will help clients understand all the available liquidity in the market.”
He adds the algo will have access to a range of displayed and dark trading venues, including GETCO's GETMatched dark pool.
According to figures from US boutique agency brokerage Rosenblatt, which releases a monthly dark trading report, GETCO's dark pool traded 77.1 million shares in April, giving it a 1.1% share of total US liquidity. Total dark trading in the US reached 924 million shares in April, representing 13.19% of overall liquidity.
GETAlpha will use the same tactics as GETCO's US market making operations to hunt liquidity, which Coleman claims will help to prevent other market participants from discovering the algo's intentions.
Electronic market makers typically offer two-way prices on the markets they operate, making money on the spread between their buy and sell prices and maintaining a flat position at the end of each trading day.
Although he acknowledges that the buy-side are becoming more comfortable with high-frequency trading, by “recognising it is a tool, rather than a type of market participant”, Coleman believes that one of the main drivers for use of the new algo will be the need to adjust further to the evolving market landscape.
“The marketplace has changed a huge amount over the last three or four years,” said Coleman. “If the algos that the buy-side are using haven't adjusted in line with this, they probably aren't delivering optimal performance. GETAlpha will continuously be updated so that it can adapt to market structure changes over time.”
GETAlpha is the latest offering from the firm's execution-only business GETCO Execution Services, a suite of trading tools that also includes GETMatched and GETRouted, a customised low-latency order router.
Coleman said that he expects to offer a version of GETAlpha in Europe in the future and also said that GETCO is in a number of discussions with brokers to help increase distribution of the algo among buy-side institutions.
“We are not opposed to white-labeling the algo and we have had some discussions with brokers to that effect, but these are currently at an early stage,” he said.