Citi Launches Intelligent Options Algorithms


Citi has added intelligent options algorithms for U.S. equity options to its suite of advanced electronic trading strategies.

The algorithms are intended to provide traders with speed, liquidity and the desired degree of exposure, using Citi’s proprietary smart routing logic, which provides liquidity and price improvement while avoiding information leakage.

“The intended users of the new option algos are buy-side traders looking to intelligently work option orders systematically using Citi’s advanced algorithmic logic,” said Kevin Murphy, head of U.S. options electronic execution at bulge bracket bank Citi. “Traders get the added benefit of having each ‘child’ order eligible for liquidity and price improvement opportunities via Citi’s proprietary smart order router.”

Platforms combining execution, analytics and risk management have become the de facto standard of care for market practitioners as algorithmic and high-frequency trading strategies have proliferated across asset classes.

Fellow bulge bracket bank Credit Suisse recently launched in the Asia-Pacific region AES Guerrilla 2012, an agile trading strategy to assist investors in sourcing liquidity.

Credit Suisse’s AES, or Advanced Execution Services, team developed Guerrilla 2012 for clients trading in Asia-Pacific equity markets, whether they are calm or volatile, liquid or illiquid.

“Guerrilla has long been one of the most popular trading strategies in the U.S. and Europe, and now Guerrilla 2012 brings our algorithmic offering to clients in Asia,” said Hani Shalabi, head of AES for Asia-Pacific at Credit Suisse. “This is one algorithm which is flexible and intuitive enough to adapt real time to current market conditions.”

The options space is a comparatively late arrival to cutting-edge trading techniques, but it is catching up.

OptionsCity, a provider of algorithmic trading technology, has launched The Algo Store, an online algorithm repository which can be used to create, purchase and download algorithms, as well as view various algorithm examples.

Third-party quantitative analysts are able to use The Algo Store to write and sell algorithms or components to traders around the world.

Demand for algorithmic trading products and services is directly correlated to a spike in message traffic in the U.S. derivatives markets.

The Options Price Reporting Authority (Opra) projected at the beginning of 2012 that firms would need 2.45 gigabits per second of bandwidth to handle its consolidated feed of U.S. options quote and trade data by July 2012, rising to 2.82 gigabits in January 2013 and 3.06 gigabits in July 2013.

Required capacity was projected at 10.2 million messages per second by July 2012, increasing to 11.8 million by January 2013 and 12.7 million by July 2013.

Opra’s projections are based on an average of message peaks at one-second intervals, which better reflect system utilization during bursts of traffic. Earlier projections were based on five-second intervals.

An abundance of options exchanges—the U.S. has nine—and the attendant fragmentation of liquidity is forcing options traders to equip themselves with algorithmic techniques.

That applies as well to dark pools of liquidity, which have begun to appear on the options landscape as they have in other asset categories.

“In addition to offering standard TWAP and Smart peg logic, this is the first time buy-side traders will be able to execute US listed option orders using Citi’s flagship liquidity seeking algorithm to intelligently seek and draw out liquidity on various venues,” Murphy at Citi said.

Citi’s new options smart algorithmic suite includes several dynamic strategies for increased order execution flexibility and improved execution performance. Citi is adding equity options to its flagship algorithm with multiple levels of aggression.

The new option algos have been fully tested by Citi’s internal traders and by a select group of beta customers. “The strategy functionality and flow process have been working flawlessly,” said Murphy.