US broker Knight Capital is launching a new ‘smart order execution’ algorithm designed to help investors source liquidity in small- and mid-cap stocks. The algorithm, called Oasis, is scheduled to be launched in Europe before the end of the year.
According to Joe Wald, managing director, Knight Capital, the Oasis’s ability to source liquidity in difficult-to-trade names stems from the firm’s small- and mid-cap trading expertise and a number of new technology-based innovations. He said the algorithm leaves a minimal footprint when seeking liquidity because it has been calibrated to recognise and respond to trading patterns that are particular to high-volatility, low-volume trading environments (e.g. wide bid-offer spreads).
The algorithm’s anti-gaming protection is also designed to pull orders out of a liquidity pool if changes in spread levels suggest pinging.
In the US, Knight has a 38.9% market share in stocks that trade less than two million shares per day.
According to Wald, Oasis is the first in a new wave of sector-specific algorithms that are being developed to trade in particular market conditions. “Clients need a specialised strategy to handle the complexities of navigating through intricate trade scenarios rather than a one-size-fits-all approach,” he said.
Small- and mid-cap stocks were selected as Knight’s first “niche” in response to client priorities, Wald suggested. “This is a high-alpha-generation sector for a lot of portfolio managers,” he said. “In the US, it’s critical for firms trading in this niche to be able to source liquidity across many venues, including dark pools, and that’s increasingly the case in Europe too.”
Oasis is powered by FAN, Knight’s smart order execution algorithm, which uses real-time and historical data to seek liquidity across displayed and non-displayed markets. FAN supports all the algorithms in Knight Capital’s EdgeTrade Algorithmic Suite, which can be accessed through Knight Direct, Knight’s multi-asset-class execution management system, as well as through a number of third-party execution and order management systems.