Tag Archives: algorithms

Strike Price

Options Exchanges Prepare For Worst Cases; “Algos Gone Wild”

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NEW YORK (Reuters) – A year after Goldman Sachs <gs.n> bungled a software upgrade and lost tens of millions of dollars from unintended trades, the 12 U.S. stock options exchanges have crafted new rules for dealing with erroneous transactions, according to draft documents seen by Reuters.

Under the proposed rules, unintended trades placed by professional traders will usually have their prices adjusted to levels as close to their fair market value as possible, while wrong trades by retail customers will be mainly be undone, five sources with knowledge of the matter told Reuters.

The rules are meant to protect investors from algorithms gone wild and other sources of market turmoil. Regulators and exchange operators across equities, commodities and other markets have been taking steps to prevent mistaken trades from spiraling into collapses, a rising concern as trading grows increasingly automated.

Read more: http://www.businessinsider.com/r-exclusive-us-options-exchanges-craft-rules-to-fend-off-turmoil-2014-8#ixzz3Bof6Z9Ce
Tech Talk

Broker-Neutral Trading Technology Firm Offers New Suite of Sweet DMA Tools

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Below extract courtesy of Wall Street Letter, as reported by WSL staff columnist Sean Creamer

wall-street-letter-logoOMEX Systems, a provider of web-based, broker-neutral and FIX-compliant front, middle, and back office platforms for broker-dealers and buyside firms, will craft a direct market access offering to aid broker-dealers in choosing algo providers, according to John Houlahan, chief operations officer.

New York City-based OMEX , which introduced its OEMS (Order and Execution Management System) in 2009, is creating newly-enhanced functions for traders interested in setting up direct market access to allow brokerages to place and modify orders on a faster basis, noted Houlahan.

John Houlahan, OMEX Systems

“We are also building out functionality to facilitate direct market access clients via internal algorithmic parameter metrics,” said Houlahan. “We are building a DMA tool to allow broker-dealers to pick and choose various algo providers to place, modify, and monitor trades for intraday modification for cash desk, options, fixed income and futures.”

OMEX is also preparing to make its trading and execution functions available across the pond, so that global broker-dealers can have access to the offering, Houlahan said. The expansion comes on the heels of the firm being certified for use in the Mexican exchange network, he added.   Continue reading →

Tech Talk

Algorithms & Altruism 101: Big Buy-Side Player Want Better, Going Back Upstairs

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wsjlogoTake-away from (2) news articles today profiling proliferation of algorithmic trading strategies: The buyside “gets it”, but they don’t want it..

 Excerpt from WSJ’s Bradley Hope article “Buyside Traders Move Upstairs”: Some of the world’s biggest investors are changing the way they trade in U.S. markets in response to what they say are rising risks for institutions of their size.

The strategies include conducting more “upstairs trades,” in which deals are executed among big institutions, bypassing the broader market, as well as other sophisticated order-routing techniques designed to avoid pitfalls that have become increasingly apparent to investment managers.

Investors say such measures are increasingly necessary because the proliferation of algorithmic trading and other structural issues, including the fragmentation of the market, are hurting their ability to get the best prices and execute large trades quickly.

marketsmedia logo Excerpt from MarketsMedia “Buyside Traders Seek More..”

With algorithmic trading firmly entrenched in the electronic equity landscape, buy-side traders on an eternal quest for alpha preservation are moving beyond algo selection to algo optimization, which entails monitoring and calibrating as the trade is going down.

“The real objective is to get best execution, which often requires not only picking an algorithm but managing the parameters of that algorithm subject to market conditions,” said Michael Earlywine, head trader, North America at $1.2 billion asset manager Ecofin.

One of the more compelling critiques re: above noted topic is courtesy of industry veteran and electronic trading guru Thomas Quigley, Managing Director/Electronic Trading Group for agency boutique WallachBeth Capital,  “The take-away from both articles is a message that we caveat whenever institutional firms reach out to us for guidance; however commoditized electronic trading approaches have become, and however easy it may seem to choose and implement algo-based strategies, the need for consultative and agnostic guidance has never been more relevant.”

Both above-noted news articles can be accessed by clicking on the logo links adjacent to the excerpt.

Tech Talk

Algo Shop Takes On Big Brokers With Pragmatic Solution To Combat Conflicted Brokers. Bravo!

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tradersmag Courtesy of Mary Schroeder, TRADERSmagazine.com

MarketsMuse Editor Note: Although the following story profiles the algo revolution taking place within the FX market, those buysiders (and sell-side firms) utilizing algorithms for listed stocks, ETFs and options should find it easy to read in-between the lines–key word “conflict of interest.”

david_mechner1
David Mechner, Pragma

Big brokers began offering foreign exchange trading algorithms five years ago, and now all of the major players have an offering. Now a vendor is hoping to upend the status quo with a suite of algorithms it claims will offer a better execution.

“We are an independent provider of trading technology and there’s a greater awareness these days in the FX market about existing algo providers who are generally dealer banks with a principal interest,” said David Mechner, chief executive at Pragma, historically a vendor of equities algorithms. “Their P&L is in direct conflict with that of the client.”

Mechner argues that banks may favor their own liquidity pools when handling customer orders and that may work to the disadvantage of the customer. “It’s an obvious conflict of interest,” he added. “A lot of the algo offerings that the banks provide explicitly trade into their own stream. Some of them are mixed where they may or may not. Some will mainly trade on ECNs, but there’s a clear awareness that there’s a role that an independent firm can fill there.”

Foreign exchange algorithms, like their cousins in the equity market, break up a large block trade and feed it piecemeal into the market place over time. In the FX world, the algos are succeeding point-and-click aggregation technology that simply gives the buyside access to a big pool of liquidity that might include ECNs as well as dealers. They are point-and-click mechanisms much like the old direct market access platforms of the traditional equities world.  FOR THE ENTIRE STORY FROM TRADERSMAGAZINE, PLEASE CLICK HERE

Strike Price, Tech Talk

Citi Launches Intelligent Options Algorithms

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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. Continue reading →