06.22.2016
By Rob Daly Editor-at-Large

Data Helps Salvage Value From ‘Bad’ Dark Pools

06.22.2016 By Rob Daly Editor-at-Large

Despite some perception to the contrary, there is no such thing as a ‘bad’ dark pool.

That’s the perspective of agency broker CLSA Americas, which believes that to be the case at least so long as trade-routing decisions are informed by empirical data.

“I’m not really a fan of any individual saying ‘I think this is a good dark pool and this is a bad pool. We won’t go here, but we will go there’,” said Ruth Finkenstadt, head of electronic trading at CLSA Americas. “I prefer a model based on broad and neutral access to venues that then uses the data and the quantitative logic of the algos along with regular review and oversight in order to make the best decisions about order placement and routing.”

Finkenstadt, who the CLSA Americas brought in approximately five years ago to build its electronic trading business from scratch, sees a regular manual review of venue statistics and capture rates as critical to get the most of a firm’s order routing tables.

“There’s manual oversight, but you’re also leveraging the capability that you get from the data,” she said. “You need both the data and the quantitative logic built into the platform in combination with regular oversight in order to make the best decisions around your routing logic.”

Even dark liquidity pools that are known for their toxic liquidity might be the right destination depending on a trade’s specific goal.

“If the objective of your trade is pure liquidity seeking, it is very different than if the objective is to not leave a footprint and to be very concerned with information leakage,” Finkenstadt explained. “In some circumstances, really all you care about is optimizing your liquidity capture and in other circumstances, you care more about information leakage and protecting your orders with price and minimum quantity protection in the venues that you may go out to.”

More on Algo Trading:

Related articles

  1. Allowing algorithms to control the supply and demand of crypto was challenged by Terra Luna.

  2. CME Boosts European Energy Business

    Infrastructure and sustainability will be one of the biggest opportunities in alternative investments.

  3. The broker's algo development team gains access to high quality, granular Level 3 data.

  4. Trading Europe From ‘Across the Pond’

    Bank aims to gain share from its systematic approach to trading, market structure proficiency and modern techn...

  5. The firm will be rolling out algos for institutions to navigate crypto market structure.