PDQ Launches Liquidity Estimates


Alternative trading system operator PDQ has launched a new transaction cost analysis feature that provides users with an estimated basis-point impact for their block trades.

“We decided that we wanted to create tools to help out institutional customers understand the nature of the market and the specific stocks in which they want to trade,” said Keith Ross, chairman and CEO of PDQ. “This will help users address the vast differences in liquidity among for the more than 8,000 Regulation NMS stocks traded.”

After implementing the SciDB database management system from vendor Paradigm4, PDQ collects and compiles all the quotes for each traded stock every two hours and generates an individual liquidity profile for that stock.

Keith Ross, PDQ

Keith Ross, PDQ ATS

“If I want to buy $1 million notional of XYZ, it typically would have a basis impact of 100, 200, or 300, bps,” said Ross. “As we’ve developed this tool, the typical basis-point impact of a trade can vary from less than 0.5 bps to the SPY to more than 400 bps for a stock with a low average daily volume.”

Users enter a ticker symbol and the size of the their order and the system will provide users with the basis-point impact that they should expect from such a trade.

“Traders then can have a conversation with their portfolio managers to see if such an impact still fits into the portfolio managers’ models,” said Ross.

Users also can enter their trades with a requirement that the trade meets basis-point impact that they expect.

“If they put in a $1 million notional and want to have no more than 100 bps impact but the trade would have a 200 bps impact, the system would return the trade to both sides and suggest trying the trade again in 10 or 20 minutes.”

The first iteration will base the liquidity profile on historical data. “We expect to have about six months worth of data, but my understanding is we’ll make that configurable to our clients. If they want to look at the last week or the last 30 days, they can choose their time frame.”

PDQ plans to review how well the new tool helps clients execute their block trades before considering a real-time offering. “We have not put in the infrastructure for real-time analysis yet because it is a pretty heavy list,” said Ross.

Featured image via Shane Farnsworth/Lightstock&lt

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