US-based broking house Knight Capital Group has added Nordic stocks to its Knight Link equities trading platform in Europe and launched algorithmic pairs trading capabilities for buy-side clients in the US.
Knight Link Europe, a systematic internaliser launched in November that allows both retail and institutional brokers to interact with Knight’s internal market-making flow, has started trading 75 large-cap stocks listed on the Nasdaq OMX Nordic markets in Finland, Denmark and Sweden.
With the addition of the Nordic stocks, Knight Link will now make markets in more than 600 European-listed stocks, including those in the UK, France, Belgium, Netherlands, Germany, Italy and Switzerland.
“We understand that each market is different,” said Kee-Meng Tan, managing director and head of Knight’s electronic trading group in Europe, in a statement. “Knight Link is customisable to each client’s needs and preferences. We accommodate a wide range of trading architectures and capacity requirements through our market-leading technology, extensive market-making operation, and connectivity to the full range of trading venues in Europe.”
He added, “We saw over US$4 billion executed through Knight Link in January and hope that the expansion will facilitate further growth.”
Knight’s new US algorithmic pairs trading capability grants buy-side users access to Knight’s internal liquidity as well as external dark and lit markets using the broker’s FAN smart order routing technology. It supports complex pairs trading strategies – including multiple combinations of single securities, inverse pairs and set-up and unwind functionality in a single pair – and allows traders to create their own strategies.
The service also features low-latency, high volume capabilities through its server-side architecture.
Traders use pairs trading strategies to capture the spread between two or more related securities, keeping risk low by remaining market neutral.
“The market environment in 2010 is ideally positioned for pairs trading strategies,” said Joseph Wald, managing director, Knight Direct. “After the turmoil of the last several years, investors are more interested than ever in managing risk by taking a market neutral approach while residual uncertainty remains.”
Wald added that merger and acquisition activity is expected to continue rising, while robust issuance of preferred stocks has created more opportunities to pair them with their common stock counterparts. “Knight has developed the algorithmic pair trading technology to help institutional traders make the most of these opportunities,” he said.