Goldman Sachs has upgraded its Sonar algorithm to support clients’ increasing need to reaggregate liquidity in an increasingly fragmented and volatile European equity market.
Sonar’s enhanced ‘aggressive’ functionality is a liquidity-seeking algorithm that taps liquidity in Goldman Sachs’ SIGMA dark pool as well as other non-displayed liquidity sources, and also accesses lit venues via the firm’s smart order router, while managing potential market impact. Sonar Aggressive will access liquidity in Morgan Stanley’s MS POOL and UBS’s PIN crossing networks following a liquidity-sharing agreement announced last month. Sonar Aggressive is derived from the firm’s existing Sonar execution algorithm.
“Due to the changing liquidity landscape and continued higher volatility, Europe has become a harder place for our clients to execute their trades,” said Michael Seigne, head of European algorithmic trading, Goldman Sachs. “There is now less liquidity to be found in the traditional places and it is almost impossible to reaggregate the liquidity without access to the necessary electronic tools that can reach multiple liquidity pools simultaneously.”
Goldman Sachs has tested the new functionality internally over the past several months and has begun to roll it out to clients in Europe in recent weeks. According to recent liquidity metrics, Sonar Aggressive has been sourcing 40-50% of fills off the primary exchange. It is estimated that multilateral trading facilities currently account for roughly 20% of displayed liquidity in large-cap European stocks.
“Increased volatility and liquidity dispersal have changed our clients’ trading behaviour – they have become more tactical in their trading and want the ability to aggressively demand liquidity at price levels in a given name without pushing the stock around,” said Seigne, “We have therefore created new functionality within our Sonar algorithm that intelligently accesses dark and lit liquidity across multiple sources at favourable prices, using a real-time pricing model which adjusts aggressiveness based on the availability of liquidity. Sonar also utilises stealth order placement to minimise information leakage and therefore impact.”