Agency broker and IT provider Instinet has released a customised version of its Execution Experts suite of algorithms tailored for the Asian market.
The suite, originally launched for US clients in 2008, has been in use by Instinet traders in Asia since the start of the year. Over the last 10 months the Execution Experts strategies have been modified for use in the region, for example by factoring in Asian historic tick data, bid-offer spreads and, where relevant, dark liquidity destinations.
“It's one region, with 13 different countries, each with its own market structure. But technology upgrades at trading venues are making the Asian market look more like trading environments in the rest of the world. Trade sizes are getting smaller and trading is becoming faster. There are also new trading venues developing,” said Glenn Lesko, CEO for Instinet in Asia.
The suite tackles the issue of faster trading using the ”Typhoon' data analysis tool which analyses market data at high speeds then uses complex event processing capabilities to rapidly determine whether there is an opportunity or potential risk in the market.
To address growing market fragmentation in Asia, Instinet's Nighthawk algorithm sources liquidity across multiple venues and can be used in conjunction with other algorithmic strategies in the Execution Experts suite.
According to Bryce Kelly, head of Asia-Pacific product strategy, the Experts algorithms are built on a platform that allows them to dynamically adjust trading activity when market conditions change and engage with markets when signals dictate attractive times to trade. “To exemplify the benefits of this type of behaviour, the Experts were very effective in helping our US clients avoid trouble during the ”Flash Crash' in May.”
The Execution Experts suite in Asia-Pacific consists of ten individual strategies:
– BlockPeg accesses liquidity with minimal impact on the spread by posting orders on the passive side of the market while crossing the spread for user specified quantities;
– Cobra seeks hidden liquidity in both lit and dark venues while trying to minimise signalling and market impact while maximising shares traded;
– The Dynamic Participation strategy dynamically adjusts participation rates in response to price changes, increasing or decreasing target participation according to the selected trading style. The strategy also allows users to exclude dark and block liquidity from volume calculations;
– A multi-benchmark strategy, TEN, allows users to balance tracking VWAP, arrival and departure price by assigning weights to each of the three benchmarks. TEN uses dynamic programming optimisation to integrate Instinet's price and volume prediction models into a robust benchmark strategy.
– Nighthawk, which seeks hidden liquidity, intelligently accessing dark-liquidity sources to execute orders with sophisticated price-modelling and allocation logic. Nighthawk logic is embedded in all strategies in the Experts suite;
– Implementation Shortfall balances opportunity cost and market impact to minimise arrival price shortfall;
– TargetClose minimises slippage and impact versus the closing price. It allows users to trade outsized orders benchmarked to the close that otherwise might create undue pricing impact if sent with a ”market on close' order;
– The Participation strategy trades a targeted percentage of market volume over a specified trading horizon. The Experts Participation uses volume prediction and advanced tactics to disguise its intentions;
– Volume-weighted average price (VWAP) algorithm targets the VWAP for a specified trading horizon. The VWAP strategy is best suited to relatively liquid orders that must be completed by a specified end time; and
– Time-weighted average price (TWAP) algorithm trades against the TWAP spacing an order evenly across the specified time horizon.
The Execution Experts are available through Instinet's Newport 3 execution management system (EMS), a number of third-party EMS vendors and through direct FIX connectivity.