The new version of Aqua, JP Morgan’s flagship liquidity-seeking algorithm product will be live and available by 1 September across all of Asia (with the exception of Indonesia).
The firm has said its quantitative intelligence makes it a considerable advance on the previous version.
The product is being made available to the market in August so customers can test it and ‘burn it in’.
Aqua seeks to complement participation-based strategies with liquidity-based strategies.
JP Morgan found that whilst certain clients were happy with participation-based strategies, others had moved the paradigm with the urgency with which they capture liquidity. They can use Aqua for such orders and the system allows them to specify their urgency across five levels, whether their requirement is passive, through to ultra-aggressive. Aqua will then manage how it goes to market.
“Aqua utilises several real-time quantitative models to achieve a client’s execution objectives,” said Frank Troise global head of J.P. Morgan execution services. “For example, our fair value model is employed to opportunistically access liquidity in lit pools, if pricing is considered favourable relative to the models’ fair value calculation.
He added. “In addition, models in Aqua protect orders posted in dark pools from what are deemed unfavourable, although within limit, executions. Aqua models signal when to take a pass on liquidity when it is considered expensive. Aqua isn’t like the proverbial fish that snaps up the bait that it sees dangling on a hook.”
The new Aqua takes into account dark pool interaction and fragmented lit pool interaction – experiences learned from the US and Europe.
“The new Aqua has delivered considerable performance improvements in North America and EMEA,” said Shilesh Shekhawat, head of electronic trading solutions, Asia. “We are now rolling out these enhancements in Asia, incorporating the new and improved models around dark and lit placements and fair value. It is easy to use, making our offering globally consistent and it gets the best possible liquidity from various lit and dark trading venues.”
JP Morgan established a global platform in 2010 and 2011, and built its algorithms on that. The old Aqua was in that platform.
The rebuilding of Aqua has involved a ground-up construction of algorithms from its locally-based quant team, rather than being lifted from Europe or the US and simply dropped into Asia.
According to JP Morgan it has the look and feel of a global algorithm that is adapted to the market being traded in,
Mindful that what works in Australia does not necessarily work in India or Southeast Asia, all models are calibrated to a local market model. With that global feel, they anticipate a favourable reaction from global clients that look for similar behavior across the world.
“The new Aqua caters to the most recent changes in market structure. What ‘liquidity seeking’ means today is different from the era in which the original Aqua was conceived,” said Ed Duggan, head of electronic client solutions sales, Asia. “The old version of Aqua in Asia was an aggressive DMA-style algorithm. Liquidity seeking now involves managing impact on a range of lit venues, versus opportunistic posting in other venues which may run lit and/or dark books, versus resting liquidity in your own dark pool or that of another broker via aggregation.”
After the current project is complete, the team will focus on matters such as execution advisory and fine-tuning how clients use Aqua, such as client specific customisations, which will be far more flexible than under the old Aqua. Another intention is to add electronic swap capabilities by the end of this year in Australia, Hong Kong, Korea, Taiwan and China.
To accompany the product expansion in Asia, the firm has made new hires, including Stuart Baden-Powell from RBC Capital Markets, who has joined as an executive director. He will drive product distribution and publish market structure pieces.
The firm has also brought Angela Lee into the client coverage team. She joined the firm from HSBC.
Relocating to the Hong Kong office, Greg Wurtz has been transferred from the US where he ran smart order routing for equities and options. He will form part of the product team, focusing on electronic swaps and exchange connectivity, reporting to Shilesh Shekhawat.