Agency broker ITG has released a new algo that targets the point at which US exchanges release imbalance information to better tap into closing auction liquidity.
The ITG Dynamic Close algo lets traders exploit trading opportunities arising from the disclosure of buy and sell quantities for specific stocks by the New York Stock Exchange and Nasdaq OMX.
Jeff Bacidore, ITG’s head of algo trading, said extensive empirical research conducted when developing the new strategy had thrown up some surprising results.
In particular, ITG’s research quashed the myth that trading part of a large order before the close reduced market impact. As such, the agency broker’s Dynamic Close strategy pursues open market liquidity in the pre-cutoff period.
“We found that traders looking to reduce market impact can benefit by trading a portion of the order outside of the closing auction. But they should be targeting the point just before markets release imbalance information, because that’s when markets find out whether there is a large order in the closing auction,” Bacidore said. “The algo is designed for traders using the closing price as a benchmark but also for those looking to benefit from the increased liquidity around the close,” he said.
The algo also offers traders a flow and a rebalance setting, helping users to minimise slippage to the close and reducing implementation shortfall.
In March, ITG launched a similar algo targeting opening auctions of the two leading US equities exchanges, using real-time data from pre-market imbalance feeds.