Although equities commissions have fallen over the past decade and backers of the Members Exchange seek to shrink exchange fees further, reining in explicit trading costs is only the tip of reducing overall trading costs.

Implicit trading cost, such as implementation shortfall and adverse selection, average approximately 90 percent of the total cost of a trade, according to global cost research issued by agency brokerage ITG before its acquisition by Virtu Financial.

Brokers have reached the limit regarding how much they can reduce implicit costs by using algorithms alone, Roman Ginis, CEO of Imperative Execution, told Markets Media.

“The Street has been trading with algos for more than 15 years,” he said. “Everyone’s algo has reached the top of the s-curve regarding how well it can hide the trader’s intent while getting the order done.”

Imperative Execution decided to achieve implicit cost savings through tweaking the available market structure and launched its midpoint-match IntelligentCross alternative trading system in August 2018 as well as its Adverse Selection Protection Engine in May.

Each order book uses machine learning to calculate the appropriate timing between scheduled matching sessions for every security individually.

Using predetermined matching sessions are not a new approach, according to Ginis. Exchanges experimented with the model unsuccessfully because they could never find the proper window length and took a “one size fits all” in their deployments.

“Each security trades differently at different times with different participants,” he added.

For IntelligentCross, its engine measures the price movement after each match for about 50 milliseconds as well as the match frequency and adjusts the window between matching sessions, typically in milliseconds.

“Basically, we want the price to be flat after the print,” said Ginis.

The ASPEN engine, however, uses the same machine learning system to examine all of the filled orders on the bid side that had their price drop within roughly a millisecond after their fills once the transaction prints to calibrate the timing of the matching sessions within a range of hundreds of microseconds.

During the pauses in matching, orders can arrive and be canceled at any time, according to Ginis. “The trader has full control of the order at any time.”

Since IntelligentCross’ launch eight months ago, the platform has traded more than 1.5 billion shares and reduced implicit trading costs to a tenth, an average of 0.13 bps, compared to 1.37 bps of a comparable transaction on an exchange, according to Imperative Execution.