Bloomberg Tradebook’s new REACT algorithm, which is designed to respond to price movements like a human trader, now allows users to trade without displaying their intentions.
Users can now combine Tradebook’s HIDE functionality with REACT, enabling them to conceal their orders from the market. “Not only does it put client orders in the dark pools, it also puts hidden orders within the exchange venues at the same time,” Gary Stone, director of trading research and strategy at Bloomberg Tradebook, told theTRADEnews.com. “We split your order up across many different venues, but there is no display component at all.”
He added, “Within REACT, you can have a display component as well as a hidden component, but if you choose HIDE and REACT, your movements will be completely dark.”
REACT, launched last month, is primarily used by hedge funds and institutional investors. According to Tradebook, the algorithm seeks to capture maximum price improvements by trying to predict and react to short-term price direction, and by dynamically adjusting the quantity, price and market venues in which to represent an order.
It was developed following consultation with a group of advisers from hedge funds and institutions, who wanted to ensure their orders were being sent to the most appropriate venues to get filled. Stone said that the advisors complained that in some instances, orders were not necessarily being sent to the best venues, and so they were being traded around as a result. “One complaint was that some of the other platforms they are using will place orders where their brokers are getting the best rebate, and that is not necessarily the best place to put the order because it may not be where you get filled,” he said. “We heard a lot of those types of questions which made us start thinking: If that’s what’s happening, how do we know where the orders are supposed to be?”
Although REACT has been developed for the US market, it could also be employed in Europe, according to Stone. “This is a US market algorithm which, depending on what happens in Europe with fragmentation, is adaptable to the European market,” he said.