Virtu Financial speeds up POSIT Alert and shifts to bilateral matching

Virtu’s POSIT Alert system was deemed slow compared to other blotter scraping tools, as the firm moves to 1:1 matching and significantly reduced latencies. 

High-speed trading firm Virtu Financial has finalised major changes to global block indications network system, POSIT Alert Europe, and deployed its technology in a bid to speed up the block trading process for clients.

Virtu Financial told The TRADE that it has been investing heavily in the system following its acquisition of agency broker ITG in March last year, with upgrades to the front- and back-end technologies, hardware for POSIT Alert’s indications matching engine, and a significant reduction in latency. 

“In a market that is becoming more electronic and increasingly fragmented, speed is crucial. The technological improvements we made to POSIT Alert reduced many of the latencies that existed across the platform, leading to increased liquidity, fewer failed matches, and an overall better user experience for our clients,” Brad Johmann, global head of POSIT Alert at Virtu Financial, said in an interview.

He added that Virtu Financial was aware of the latency issues with POSIT Alert prior to its acquisition of ITG. This was because as the firm’s algos route conditional orders and receive almost immediate invitations from multiple venues, it would firm up with the venue that sends the invite first, with POSIT Alert slower than other platforms to respond.

“Prior to the merger with ITG, we observed that POSIT Alert was generally not the fastest venue to get us its invitation, meaning Virtu’s algos typically firmed-up at other venues,” Johmann added. “After the deal with ITG closed, this seemed like a common-sense problem to solve – reduce latencies in order to increase the likelihood of electronic participants firming up with POSIT Alert, and in turn providing increased block opportunities for all participants.”

Block trading has surged in recent years across Europe following the introduction of restrictions on dark trading under MiFID II. The regulation’s double volume caps, which limit transactions that can be executed under waivers at 4% at a trading venue level and 8% for all EU trading venues, have seen the number of orders executed above the LIS (large in scale) threshold grow significantly.

LIS trading under MiFID II also benefits from waivers enabling participants to negotiate trades without pre-trade transparency. Ahead of the implementation of MiFID II in 2018, major European exchange operators such as Cboe Global Markets, the London Stock Exchange Group and Euronext, launched block trading platforms to meet the demand for LIS services.

“Following various client consultations and user groups, client feedback was clear: keep it simple, make it faster at the point we are ready to trade, and reduce the number of times a light-up doesn’t result in a trade,” Michelle Butler, EU head of POSIT Alert at Virtu Financial, also told The TRADE. “With this in mind, the enhancements to POSIT Alert in terms of technology in the back and front-end improve efficiencies for clients in those three areas.”

Alongside the rise of block trading, conditional order types have been cemented in the industry as useful tools to source block liquidity, particularly in less liquid instruments. According to a study from Virtu Financial last year on conditional orders, as the block space has become more fragmented, speed has become increasingly important, as the venue with the lowest latency is more likely to receive larger number of executions.

The latest statistics from TABB Group show that dark trading in Europe executed as block activity has remained strong, with the average notional traded on block venues reaching €1.35 billion in December, representing a significant 38% of dark trading.  

At the same time, Virtu Financial has made moves to alter POSIT Alert’s indications logic from multi-party light up functionality to 1:1 matching, with light up priority given to POSIT Alert’s front-end users by order size. Johmann and Butler told The TRADE the change to POSIT Alert’s matching logic was made, again, to speed up the system for users.

“The multi-party matching logic had some benefits, but often led to slower trading because you are waiting for multiple parties to respond,” Johmann said. “The move we have taken in terms of sending invitations to just one party on each side, with a clear set of prioritisation rules, has been greatly appreciated by users because it’s easier to understand, more transparent, and speeds up that block seeking process.”

Butler added that the multi-party light up process was beneficial in offering the opportunity to everyone who had an order in that name at the time, but this only occurred on a few occasions and so was not considered a key part of the process. 

“It could also be frustrating for clients looking to trade, but with the 1:1 matching logic and prioritisation rule system, traders gain the confidence that they are looking at the biggest block at that moment and they will get a faster response in the Alert system if they wish to trade,” Butler said.

Virtu Financial acquired agency broker ITG in March for $1 billion, after confirming plans to merge the previous November. Ahead of the closure of the deal, Virtu confirmed that it will preserve the broker-dealers at ITG through separate and legal entities for its client facing dealer businesses. The high-speed trading firm also reiterated that it will maintain and enforce barriers to protect sensitive client information.

Elsewhere, Virtu Financial has confirmed plans to launch an outsourced trading desk and is signing up clients to use the service. Led by ITG veteran, Jack Pollina, the Execution Concierge Service (ECS) deploys Virtu’s multi-broker technology platform and products, combined with its high-touch trading and global client coverage, targeting small-to-mid-sized asset managers.