03.18.2013
By Terry Flanagan

Algo Overload Afflicts Buy Side

A dizzying array of algorithms confronts buy side traders, making the choice of which broker to use for which algorithm difficult.

“The number of algorithms on a buy side trader’s desk have tipped the scale and become basically too cumbersome to get real benefit,” said Alfred Eskandar, CEO of trading system provider Portware. “With so many different algos for so many different market conditions, it’s difficult for the end user to ensure that they’re always in the right algo at the right time, which puts more pressure on brokers to be more hands on and creative.”

Alfred Eskandar, Portware

Alfred Eskandar, Portware

Noted Ryan Larson, head of U.S. equity trading at RBC Global Asset Management: “As we continue down this path in terms of market structure, the onus is on both the buy side and sell side to work together. The sell side needs to understand our needs and specific processes, and partner with us to find solutions to achieve best execution for our clients.”

Portware’s Alpha Vision is an “algorithmic optimization” system that uses predictive analytics to automatically select and implement the optimal execution strategy.

The system automates the process of analyzing orders, monitoring market conditions, selecting the appropriate algorithmic strategy and implementing the optimal execution schedule.

By dynamically switching between algorithms, Alpha Vision eliminates information leakage about large orders, protecting firms from the impact of high-frequency trading.

“The problem of fragmentation is being addressed by technology and creative order types,” said Eskandar. “There are so many different algos with conditional order functionality that they can essentially treat all of the 40+ dark pools as one.”

In July 2012, Portware bought the technology and analytical assets of Aritas Group, including a portfolio of 17 patents covering predictive analytics and algorithmic-optimization technology. Portware rebranded Aritas’ Alpha Pro and Algorithmic Switching Engine as Portware Alpha Vision, and offered it to market participants an algorithmic optimizer that uses predictive analytics to select and implement optimal execution strategies.

In its first full quarter of Alpha Vision operations, Portware on-boarded 10 new clients including top pension funds, asset managers and hedge funds; brought 11 participating brokers into the service bureau; and successfully integrated seven different OMS/EMS systems used by Alpha Vision clients. Over $1.4 billion was traded on Alpha Vision in the fourth quarter of 2012, with the platform generating over $2.4 million in cost savings to users.

“Our system directs the commission and the order to he broker of their choice without sacrificing algo performance,” Eskandar said. “Our goal is to enhance the customer-broker relationship, not get in the way of it. In an environment of declining commissions, brokers and customers are looking for partnerships that will add value.”

According to Portware, Alpha Vision provides buy-side institutions with superior execution quality, end-to-end workflow automation, and commission optimization tools, allowing for improved trading performance.

“Our system communicates to the trader what strategy they should be in, and it also allows the broker’s full algo suite to be used,” Eskandar said. “Typically, a trader will use two to three algos they like from a single provider, even though the provider has given them ten or a dozen. We’re helping them make efficient use and optimal selection of the entire algo suite, while the broker gets full credit for commission.”

Related articles

  1. Agency broker moves beyond execution to offer a broader suite of services.

  2. Algorithms have become more prevalent in the spot FX market.

  3. Congress Unlikely to Act on HFT

    QB’s Algo Suite for futures market trade execution is also being co-located to HKEX.

  4. Breaking data silos is key to deploying automation beyond 'nuisance' orders.

  5. They can be used on quantum hardware expected to be available in 5 to 10 years.