Instinet has launched a new algorithm that gives the buy-side the same liquidity providing tactics used by market makers, while also providing protection against predatory techniques.
MAKE, which is available in 37 markets across the Americas, EMEA and Asia-Pacific, sizes and distributes child orders at multiple price levels and across destinations, controlling adverse and negative selection. The new algorithm allows users to specify a range of different styles of liquidity providing, from patient to urgent.
“The buy-side are facing a number of challenges as a result of limited liquidity,” Ben Springett, head of electronic trading, Instinet Europe, said. “Make would help firms provide liquidity to the market and draw other flow towards them.”
When at lower urgency levels, the fade logic would come into play, meaning MAKE would briefly pause or slow trading to reduce adverse selection. Buy-side firms would be able to pull out orders that have already been placed in the market if there is an opportunity for price improvement.
“It’s the same thing a number of high frequency firms look to do and what we are looking to do is adapt those sorts of tactics and bring them to the institutional trading community,” Springett said.
“It’s important to work to protect the institutional and hedge fund trading flow that exists in the market.”
MAKE is being released as a stand-alone algorithm, but will also be incorporated into other algorithms such as VWAP, allowing all Instinet clients to use it. However, Springett expects larger institutional clients to reap more of the benefits.
“These are clients that don’t necessarily want to trade aggressively. They are happy to capture a spread and try and find opportunities to trade at favourable price points,” he said.