Pipeline Trading Systems, a US institutional brokerage and operator of the Pipeline block trading system for US equities, has launched Munitions Manager, a trading tool for the buy-side that is designed to minimise implementation shortfall losses.
Munitions Manager is not an algorithm, rather a control system that sits on top of the firm’s Algorithm Switching Engine, which uses predictive technology to select from a range of vendor-provided execution algorithms when trading.
Munitions Manager instructs the Algorithm Switching Engine to work an order throughout the trading day with a best price objective. It is designed essentially as an alternative to traditional VWAP algorithms for trading throughout the day when a trader does not have a particular view on a stock.
However, Pipeline argues that the Munitions Manager differs from VWAP or volume participation strategies because it is designed to achieve best price rather than track or forcibly create a VWAP benchmark. Instead of imposing constraints on volume participation, Munitions Manager decides how many shares to release based on market conditions and the trader’s completion objective. It is designed to capitalise on both price and liquidity opportunities, according to Pipeline.
The system analyses data to come up with price limits that are most likely to be successful and learns how to adjust the limits from its experience with each stock it trades.
“Traders use VWAP strategies not because they enjoy getting an average price, but as a protection against the risk of getting picked off at the wrong price,” said Henri Waelbroeck, director of research at Pipeline. “The Munitions Manager strategy offers this protection without having to relinquish best price as an optimisation objective.”
Traders can access Munitions Manager from the Pipeline user interface or via FIX. The tool is currently available and Pipeline said it has been successfully deployed with several buy-side firms.