Broker UBS has launched its Tap liquidity-seeking algorithmic trading strategy in Australia, Hong Kong and Japan. The algorithm is already available in the US and European markets.
“We are working closely with regulators and exchanges to find ways to offer this algo in other markets,” David Rabinowitz, head of direct execution services, Asia, at UBS told theTRADEnews.com.
Tap is an automated strategy that searches multiple displayed and non-displayed liquidity pools and offers traders a range of urgency options that control how fast an order fills and how much of the order will interact with displayed and non-displayed trading venues.
In its most passive form, explained Rabinowitz, Tap will sit in UBS’s internal liquidity pool, the Price Improvement Network (PIN), and not route out to the public market. In its most aggressive form, known as TapNow, it will try and execute quickly by hitting all venues as aggressively as possible without moving the market.
“Over the last few months in Asia, liquidity has become more sparse and volumes are no longer as regularly dispersed as they used to be, so it is becoming more difficult to interact with those pockets of liquidity,” said Rabinowitz. “The Tap algorithm has been developed to optimise the interaction with both displayed and non-displayed venues to find volume.”
The Asia-Pacific version of Tap has been optimised to suit the structures of the local markets. One feature in particular that the strategy needed to account for, according to Rabinowitz, was the lower level of liquidity fragmentation and fewer dark pools in Asia compared with the US and Europe. “We have taken on board the nuances and microstructures in Asia and are relying quite heavily on our internal pool to give us added benefit when using this strategy.”
The volatility in stock prices since the collapse of US investment bank Lehman Brothers in Q4 2008 has affected traders’ ability to track benchmarks as closely as they could before and given them a greater sense of urgency when executing trades. “As volatility spiked and spreads widened there was a need to look at shorter duration algos to find liquidity and get the trade done,” said Rabinowitz.