A new paper from Fidessa has highlighted how smart order routing (SOR) approaches need to change in light of an evolving market.

The paper’s author, Will Winzor-Saile, has explored how the world of science, specifically quantum physics, can provide a valuable insight into the new trading landscape, intertwined with the drive for low latency and a broker's 'need for speed'.

"A new approach to SOR is needed that understands the reliability of the data and analyses market and microstructure trends", said Winzor-Saile, electronic execution product specialist at Fidessa. "Firms that do this can add real value through their SOR and provide their clients with price improvements as well as more efficient alpha capture."

The paper also shines a light on how SORs interact with dark pools and the effects of hidden liquidity on achieving the best trading result. 

"In the equities space the multi-market landscape is well established,” Winzor-Saile added. “Before any order is sent to a market, the trader or algo looks at all available pools of liquidity before deciding on the optimum venue. This decision used to be simple and was based on which venue had the best price or the most volume. But as markets have evolved, firms can no longer rely solely on visible information to make these decisions."

The post Fidessa sees need for new smart order routing approach appeared first on The TRADE.

The US options market has become so complicated it may be hampering access to liquidity, according to research by Tabb Group.

Options traders are facing four major challenges; the growing number of exchanges, diverse market models, growing options product range and accelerating trading velocity, Tabb said.

The number of options series listed on US exchanges has grown exponentially in recent years, with well over 800,000 available in 2014, up from just over 600,000 in 2013 and less than 300,000 in 2007.

With 12 options exchanges now competing for flow, each in constantly tweaking their rules and protocols in order to influence the routing of order flow. Tabb said solid order routing strategies are crucial to be able to navigate this ever-changing marketplace, meaning it is a significant competitive differentiator for brokers.

This has also resulting in a major increase in the amount of options data that must be analysed by traders.

Andy Nybo, head of derivatives research at Tabb, said: “Peak message rates are approaching 10 million messages per second, putting massive strains on technology infrastructure at sell- and buy-side firms alike.

“The ability to analyse real-time data is important, but what these firms need is the ability to analyse historical tick data to refine execution strategies that contribute to improved returns.”

The result is trading firms are having to invest significant sums into their analytics capabilities to be able to evaluate the impact of fees and liquidity on trading performance.

The post Complex US options market hampers liquidity – report appeared first on The TRADE.

The Electronic Trading platform has had enhancements to its core-pricing engine to increase the execution speed on the platform and additional auto-execution and smart-order routing methods have also been added.

The purpose of the latter is to improve pricing accuracy and reduce market impact of trade execution, the company said in a statement.

Finally, the company has redesigned what the user sees and business intelligence tools have been added to assist in execution analysis, trend spotting and quant analysis of transaction data.

In a statement detailing the changes, Neill Penny, head of workflow management at Thomson Reuters, said his customers need flexible trading platforms to continue to forge direct connections with their customers electronically.

He explained: “They need tools that provide control over electronic pricing, distribution and hedging to meet the growing demands of their client base and improve internal efficiency through automation.

“Against a backdrop of market scrutiny, the need for increasing transparency and trade reporting will only see an increased adoption of electronic FX trading around the world.”

The post Thomson Reuters outlines FX Platform upgrades appeared first on The TRADE.

Last year a series of events brought the issue of execution quality into focus.

Toxicity – the term used to assess how bad a trading venue is for executing orders at an optimal price or returning high numbers of bad fills – is a major factor.

The release of Flash Boys (one of the mostly hotly discussed issues at last year’s TradeTech) brought issues around the presence of high frequency trading (HFT) in venues to the attention of end investors and the wider public. 

This was quickly followed by legal action in the US against some dark pool operators, accused of misrepresenting the amount of HFT in their dark pools. Lastly, in the summer of 2014 the UK’s Financial Conduct Authority (FCA) launched a review of best execution, and found that many firms were falling short of its expectations.

Michael Richter, director of trading analytics, EMEA at Markit, says: “This has led to a huge trend in our client base, who are all keen to start analysing and building up their data as a way to better manage the way brokers route and execute their orders.”

Taking the measure

So there is a demand for increased information on where orders execute and whether or not they are likely to be gamed by HFT, but is it possible to measure toxicity? Richter thinks so. 

“Measuring toxicity is similar to measuring liquidity in that we can’t see it directly but we can identify and demonstrate its presence using data.”

Markit looks at some key metrics to help its transaction cost analysis customers spot toxicity in dark pools, asking questions of the data, such as “was there a run up in the stock before execution?” and “did the stock move away from you as you executed?”

Rob Boardman, chief executive officer of ITG, says his firm also examines a variety of key metrics, including market movements, timing of liquidity spikes and reversion.

“When we analyse toxicity for clients we need to look at what is the right measure of toxicity for them, because different clients have different priorities in terms of speed or size of execution, price and market impact,” he explains.

Of course, simply identifying the metrics and measuring them is not enough to understand the extent of toxicity. Markit has opted to adopt its own method for helping clients understand how toxic a dark pool is.

“We have developed an intuitive concept of ‘Adverse Ticks’,” says Richter. “An Adverse tick is, say in the case of a “buy” order, an execution which occurs on an uptick. Vice versa for a Sell order.  

“All venues should be subject to the same macro-economic momentum factors and have more or less the same tick structure in terms of percentages of upticks, downticks and ticks that were the same as the prior tick.   If you are getting a much higher percentage of adverse tickets than other market participants executing the same stock at the same order interval there is an indication of toxic activity”

Expert advice

For ITG, toxicity forms one of the core issues discussed as part of its execution consulting service that it launched in 2011, and is intended to help inform clients of how to act on the insights gained from execution data.

“Toxicity correlates with liquidity and you need to balance the needs of your client,” says Boardman. “Dark pools tend to be less toxic and lit markets tend to be most toxic but individual clients will have different experiences in different venues.

ITG performs toxicity measurements for both its client base as a whole and for individuals, though the latter will often require time to build up a sufficient data set to perform a meaningful analysis. Once this data is collected, consultants can then sit with clients and discuss what toxicity means for them and how they can refine their routing in order to improve execution quality and avoid being gamed.

With the growing regulatory focus on best execution and increased scrutiny of trading from end investors, it seems likely the buy-side will continue to demand more and more data and analysis to help them understand the effects of toxicity on their orders, not just in equities but across FX, fixed income and virtually any other asset class which has a sufficient data set to analyse. The key will be effectively combining data, technology and the advice of specialist experts to be exposed to toxicity only when necessary and to achieve best execution objectives.

• This article is taken from the TradeTech Newspaper, published at the TradeTech 2015 Conference by The TRADE.

The post Navigating toxicity appeared first on The TRADE.

With expansion plans for the US and Asia regions confirmed, new products in development and a deal with the SIX Swiss Exchange announced yesterday, chief executive Stu Taylor has been busy.

Yesterday, Algomi was announced as the company chosen to provide the technology for the SIX Swiss Exchange’s corporate bond trading venue in what is further recognition of the group’s rapidly growing popularity.

Speaking to The TRADE, Stu Taylor, chief executive officer of Algomi, said the company is now in conversations with other exchanges about offering its services but stresses that Algomi has no desire to “present itself as a trading venue.”

He explained:  “We are in conversations with other exchanges and what is clear is that there will be different flavours for different regions. The US market is materially different from Europe.

“Algomi doesn’t want to present itself as a trading venue. We don’t earn per trade.  We are all about information matching.”

As part of the group’s expansion it is currently negotiating on a lease for office space in New York and a smaller office in Boston in the third quarter. It is hoped there will be 50 to 60 people in the US operation once these bases open.

Meanwhile, in Asia, the group hired Jesper Bruun-Olsen – a former director from Oanda – to lead its efforts in Hong Kong and Singapore.

Banks that have confirmed they are working with Algomi include Deutsche Bank, Credit Suisse, Nomura and HSBC but there are many others installing the technology who are not yet ready to go public, says Taylor.

With a handful of other fixed income trading projects currently in the pipeline, Taylor could be forgiven for pausing to take stock.  However, he believes that some of the newer projects that have come to light recently will not challenge the Algomi model because its platform is not a “hub”.

He explained: “What we do is very different. We run our matching software inside the banks itself.  That is critical because banks are sensitive about the information they release outside of the organisation. 

“We can access every bit of bank data that they have but, because it is not leaving the building, they [our customers] are not concerned.  As soon as you have a hub, you get this natural disincentive.”

Algomi started life in 2012, having been founded by three former UBS employees, including Taylor, who identified a potential gap in the market amid concerns about future market liquidity.

The post Algomi CEO outlines priorities for 2015 appeared first on The TRADE.

JP Morgan has swooped to hire a Goldman Sachs stalwart to become its new global head of equities technology.

Lakith Leelasena joined JP Morgan at the end of last year as global head of equities technology (GIM) after nearly a quarter of a century with Goldman, most recently as a managing director.

His appointment comes at a crucial time for JP Morgan as the bank rolls out several new systems across the business worldwide.

In an interview with The TRADE, Kristian West, managing director (equities) at JP Morgan Asset Management, said the group is making several appointments as it looks to “start thinking, looking and acting globally”.

He said: “Predominantly, it is around systems and technology. Last year, we rolled out the common execution management system, which should conclude by the end of March.

“The roll out of the order management system (Talon) will be completed by the end of this year. We are rolling it out in Asia and, depending on resources, we will start rolling it out in the US later this year.”

West said he will be working closely with Leelasena – who is based on New York – on their common goals for the year ahead.

He added that next on the agenda is paying closer attention to analytics and the automation in the trading process.

He explained: “Traditionally, it has been about venue selection and algo selection but the vast majority of alpha capture doesn’t come down to this. Traders should be much more informed about behaviour.”

The post JP Morgan swoops for Goldman MD of 24 years appeared first on The TRADE.

The banking group said sales and trading revenue fell from US $3 billion in the fourth quarter of 2013 to US $2.4 billion in the same quarter of 2014.

Fixed Income, Currencies & Commodities (FICC) income dropped $600 million over the same period, which was attributed to a fall in credit income from lower client activity, albeit partially offset by FX and rates business which benefited from increased volatility.

The bank’s Global Markets division as a whole reported a net loss of US $72 million for the fourth quarter of 2014, wider than the US $25 million loss it declared for the same quarter a year ago.

It said the widening of the loss for the division over the quarter was the result of making funding valuation adjustments for uncollateralised derivatives in its sales and trading business.

The full year results showed a rosier picture, however, with income after tax for the Global Markets business rising from US $1.2 billion at the end of December 2013 to US $2.7 billion

In its statement to market, Brian Moynihan, chief executive officer, said the group’s focus on reducing expenses and resolving litigation matters had had a positive impact overall.

He said: “There’s more work and tremendous opportunity ahead as we improve on the platform we’ve built to serve our customers and clients and we enter 2015 in good shape to manage the opportunities and the challenges the markets and the economy will offer.” 

The post Bank of America's trading income down 20% in Q4 appeared first on The TRADE.

Chris Jackson joined Citi in September 2009 from Merrill Lynch and held responsibility for all buy side sales for the bank’s trading and execution platform.

The news follows a restructure of Citi’s markets division at the end of 2014, which affected some 40 people across all asset classes.

Jackson’s responsibilities have been absorbed by Salvador Rodriguez who has stepped into an enlarged role, a colleague familiar with the situation said.

A spokeswoman for Citi declined to comment. Jackson was unreachable for comment at the time of writing.

Jackson has also played a major role in developing industry standards at FIX Trading Community. FIX announced Jackson’s appointment as co-chair of the EMEA regional committee in July 2008 while he was director of equity markets for Merrill Lynch. 

At the time of his appointment to the FIX committee, he had worked with the then head of equity trading at JP Morgan Asset Management – Daemon Bear – who is now at State Street Global Markets.

Before his career at Citi, Jackson was responsible for the European sales of the electronic, portfolio and transition trading product at Merrill Lynch. 

He worked at Merrill Lynch for 12 years, working both in New York and London in a variety of roles.  He originally started his career at SBC Warburg.

Separately, Citi confirmed Ireti Samuel-Ogbu as TTS EMEA payments and receivables head in an internal memo last week.

Samuel-Ogbu has been with Citi for some 26 years, having previously worked in London, Nigeria and South Africa for the group.  She was most recently the EMEA Transaction Services Leader for the public sector banking team in London.

In her new role, Samuel-Ogbu will report to Ebru Pakcan, the TTS global payments and receivables head.

The post Citi parts with head of EMEA execution appeared first on The TRADE.

Joseph Wald, chief executive officer or Clearpool Group said the company’s new Iris technology will help some companies better compete with those market participants who have “for too long dominated electronic trading”.

Clients of Clearpool Execution Services will now automatically have their order guided by Iris, which the company claims will improve order handling by managing the order queue.

In a statement, the company said: “With Iris, child orders routed to a venue are decoupled from the parent. When a customer cancels and order, Iris will, in turn, cancel or reduce the order with the lowest queue priority.

“This automatic response effectively enhances the queue priority of all other Iris orders. Without Iris, a queue position is lost when better positioned orders are cancelled.”

The company said its new technology also ensures cancel/replace requests are not detrimental to clients who already have orders in the queue.

It added: “It is knows the rules for how each market centre handles cancel/replace requests.  If a customer increases the size of an order that would cause the order to lose its priority, Iris will split the order in two.”

The company said Iris also enables better competition in dark pools with minimum size order types.

New York-based Clearpool was founded in 2012 and boasts clients including hedge funds, clearing firms, broker dealers and proprietary trading firms.

The post Clearpool rolls out order aggregator appeared first on The TRADE.

Institutional block crossing specialist Liquidnet has launched new services and made a number of personnel hires to enhance its execution offering to clients.

The Execution and Quantitative Services Group (EQS) will be headed by Rob Laible, who joined Liquidnet from Macquarie Securities in July this year as head of global performance.

EQS will aim to provide Liquidnet members with more efficient ways to source liquidity and satisfy best execution requirements.

“Algorithms and execution strategies are only as good as the liquidity they can access. Our established suite of algorithmic, analytic and quantitative products and services are the only ones that leverage Liquidnet’s deep and diverse pool of institutional liquidity. And as an unconflicted, agency-only broker with expertise in lit, dark, and block markets, we consult with Members and clients on ways to access liquidity, navigate market complexities, and access comprehensive analytics, all through an integrated trading platform,” said Laible.

To help rollout the new offering, Liquidnet has made three senior hires within the EQS team.

Scott Kartinen joins as head of algo development from UBS Securities. Roberto Malamut will become head of quantitative research, bringing 15 years of experience in algorithmic modeling, forecasting and trading, most recently at Agoge Capital. Lastly, Amar Vaidya joins from Shuban Capital and will build up Liquidnet’s suite of algos and enhance its smart order router strategies. New team members will be based in New York and report to Laible.

The firm said it will focus on rolling out the EQS offering to all the markets it operates in during 2015.

The post Liquidnet announces execution services launch after hiring spree appeared first on The TRADE.