Dash Dives Into Portfolio Trading
As the portfolio-trading market continues to grow, agency-only brokerage Dash Financial has launched it first portfolio-trading algorithm for the buy side.
“We felt strongly that the market is underserved by some of the legacy portfolio-trading solutions available today,” Barbara Francis, director of portfolio trading at Dash, told Markets Media.
Francis and Jennifer Hubbs, both of who joined the company in January, spent the past eight months spearheading the launch of the new algorithm.
“To do this, we had to build not only the appropriate execution workflow, but also advanced pre-trade and risk model, real-time analytics, and data visualizations to alert the user to outliers and areas to focus on, and then finally an interrogation with our existing post-trade transparency tools to measure routing and execution performance,” said Francis.
The algorithm sports a proprietary multi-factor risk model, covariance matrix, and an optimization engine to create trading waves that minimize the risk of the residual portfolio, subject to certain user-defined constraints.
It also supports implementation shortfall and interval volume-weighted average price benchmarks as well as offering aggressiveness controls.
The offering is geared to help users optimally share and execute baskets of orders while taking into account their specific cash benchmarks and style requirements, according to Francis.
“At a simple level, the algorithm is designed to execute a basket of names by optimizing the child order slices in a way that minimizes the risk to the unexecuted portion of the portfolio,” she explained. “One of Dash’s main differentiators is the degree of user customization we allow for, so we knew that level of control would have to be a part of any portfolio-trading solution we built. However, with portfolio trading in particular, that can be tricky given the huge number of variables around things like execution benchmark choices, how to handle cash balances, preferences around how the strategy interacts with dark liquidity and conditional orders, and etc.”
Dash is rolling out its offering to a variety of FIX-based execution- and order management systems, which the firm should complete in the next few weeks, Francis added. “We’ve already certified the solution on the handful of OMS and EMS platforms on which user demand was the greatest.”
Experts caution the buy side about unrealistic expectations.
How can securities brokers differentiate?
New MarketAxess COO says market development is at an early stage.
Tailoring equity-trading strategies to client specifications is a work in progress.
Cantor Fitzgerald cites execution quality, customization, and access to liquidity as trading differentiators.