BofA Merrill Consolidates Options Algos

Terry Flanagan

In an effort to simplify its electronic options trading platform, BofA Merrill has consolidated its options algo offering into four strategies: Clean Sweep, Fast Sweep, Delta-Adjusted and Smart Spreads. The strategies have incorporated more flexibility while minimizing complexity and allow for full customization, according to the company.

“Options traders are looking for sophisticated strategies without all the intricacies on the front-end,” said Jonathan Werts, head of electronic derivatives. “In response, we’ve revamped our algo offering by reducing parameter complexity and streamlining the process, making strategy selection more intuitive for traders.”

Over the course of the last five years, BofA Merrill has built and launched a number of proprietary algorithms that its clients actively utilize today. “Similar to what we’ve seen in equities, traders are overwhelmed by the number of algorithms,” said Werts. “It gets confusing in terms of functionalities, and to a large extent, it gets blurred within their trading strategies. Based upon user feedback, we took our best of breed algorithms and retooled them for our clients.”

Clean Sweep and Fast Sweep are liquidity-seeking algos that leverages smart posting logic and aggressive liquidity capture. Delta-Adjusted is the firm’s adaptive algorithm that allows an order to dynamically update according to order level parameters and the changing market. Smart Spreads is a multi-legged strategy that intelligently moves spread orders among multiple exchange complex order books in an effort to maximize fill rates.

“We’ve consolidated nine different algorithms down to four,” Werts said. “Rather than having nine different menu items, you have four, with different parameters that traders can utilize to customize trading strategies. It’s a competitive advantage from our perspective. We continue to see a lot of growth in our electronic options business.”

Exchange-listed options volume passed 4 billion contracts for the third consecutive year reaching 4,111,275,659 contracts in 2013, a 3 percent increase from the 2012 volume of 4,003,871,308 contracts, according to Options Clearing Corp. Total options volume for the month of December was 320,209,356 contracts, up 2 percent from December 2012. OCC cleared an average of 16,314,586 options contracts per day in 2013.

By simplifying its offering, BofA Merrill provides more flexibility to traders by merging the functionality of several algorithms into four core strategies. Traders will no longer have to choose one capability at the expense of another; rather they will be able to combine complementary functions.

“When we talk to new clients, this is a lot easier for them to navigate,” Werts said. “This is also used by our internal trading desks as well. What we’ve built we use in house, and we prove our algorithms in house before we offer them to our external clients. Our internal and external clients have provided us feedback that this is the best way to proceed, and these are the specific algorithms that best meet their trading needs.”

BofA Merrill is a provider of clearing and financing services for U.S.-listed options and a global provider of equity, options and futures trading, sales and research services to mutual funds, hedge funds, CTAs, broker-dealers, pensions, endowments and other institutions.

Related articles

  1. Deutsche Borse-LSE Merger in Focus

    Instinet Fox River Quant Solution will initially be rolled out in the Americas.

  2. Algos, Post-Trade Top FCM Concerns

    Instinet's Anushree Laturkar says investing in research and analysis is key to improving client outcomes.

  3. The new platform launched via a partnership with BestEx Research.

  4. It is the first liquidity-seeking algorithm on Atlas, the equities trading platform introduced in 2019.

  5. Algorithms in Focus

    Strategy Studio allows brokers to create their own execution platforms.