Alternative trading system (ATS) PureStream Trading Technologies launched in 2021 and was developed to re-engineer the price and liquidity discovery process for institutional traders using open-ended liquidity transfer rates, as with those found in data networks.
Armando Diaz, chief executive of PureStream
The ATS claims to provide brokers and their institutional clients with improved bandwidth in order to access liquidity faster, more cost-effectively and with greater security.
At the time of the launch, PureStream claimed to enable institutional investors to execute up to 40 times faster without price impact on their portfolio implementations.
In Q3 2023, PureStream recorded 40,065,204 total trades up from 11,301,567 in the same period last year – marking a 254.51% increase year-on-year and showing significant promise for the ATS.
Two years since its go live date, The TRADE caught up with Armando Diaz, chief executive of PureStream, who noted that the electronification of equity markets has negatively impacted a trader’s ability to match directly with other institutional liquidity.
“When you think about the evolution, electronic trading originated as an aid to the trader – it wasn’t meant to replace people, it was an efficiency tool to automate the smaller orders,” highlighted Diaz.
“As a result of that, a mechanism for algorithms that complimented block trading was never created. There were no safe and efficient ways for an algorithm to indicate it has more or could do more. At PureStream, we invented the streaming block to address this gap, and improve direct matches between institutions that increase the bandwidth of liquidity transfer amongst liquidity seeking institutions.”
The ATS has gained support from across the street since its inception. In 2021, it received significant backing in a funding round led by Goldman Sachs, Nasdaq Ventures and Bank of America.
The funding was used to help support the launch of the ATS, while Nasdaq’s execution platform was later chosen to power the platform.
“We’ve all been used to sourcing on a point-in-time basis. PureStream has been one of the more disruptive ideas to the equities market structure that the market has seen in quite some time. The venue has helped to reduce signalling risk and drive better execution efficiency across our algos,” Pankil Patel, global head of electronic trading at Bank of America, told The TRADE.
“We were excited by the thought of how we could integrate this solution into our algos and ultimately what we thought would be a great improvement to the overall results of what we’re trying to achieve for our clients.”
PureStream uses percentage rate-based order types to match orders. The matched orders percentage rate is then applied to each of the stocks subsequent trade reported to the consolidated tape to create a stream of trades. This provides traders with an alternative to discovering prices purely from the national best bid and offer quote.
PureStream’s business model is described simply by the firm: Match with compatible liquidity. No selling data. No market makers. No payment for order flow.
“From an algo practitioner standpoint, we have leveraged this platform in a lot of different ways, across our different algorithms, to improve the performance for our clients,” added Bank of America’s Patel, speaking to The TRADE. “As it continues to grow, it becomes a source of liquidity that we’re finding other interesting ways to leverage.”
PureStream is exclusively available to broker dealers and does not connect directly with the buy-side. However, Diaz points out that “based on the orders that we’ve seen from our subscribers and our collective experience on the sell-side, we believe our order flow is from large institutional liquidity seekers.”
The largest use case of the platform is described by Diaz as a broker dealer algorithmic platform’s integrating streaming to improve their performance on their algo strategies that they provide the buy-side.
“Before streaming there was no way for algorithms with different strategies to match at the parent level,” added Diaz, speaking to The TRADE. “They’re each on a 1-way trip into the market and the market makers, and we are now creating a way or a language or a protocol where algorithms can match once, achieve their strategy better and never have to send any orders out because they’re in an open-ended batch with another algo.”
In terms of future expansion, the platform plans to explore the retail sphere with new order types and launches. While PureStream’s core service targets institutions, Diaz confirmed that retail investors are by no means excluded from its current offering. Institutions do, however, tend to be more able to meet the system’s high minimum order size requirement.
And given that retail orders and the continuous market today have unique market structure, streaming may not necessarily be a huge attraction for retail participants already able to get a price better than the national best bid and offer (NBBO).
“In the future, we will have order types that will address some of the pain points for retail trading,” Diaz emphasised. “Although institutional will always be our core, we would like to compete in that segment, or at least, have an opportunity for orders at PureStream to interact with retail orders. This would create a market that is more representative of all the market participants.”