Trading Algos Head North09.15.2011
Demand for HFT capabilities escalates among equities traders.
As equities trading in Canada tilts more toward high-frequency trading, U.S.-based technology companies are exporting their algorithmic strategies north of the border.
“Canada is in a transitional phase,” Paul Daley, senior managing director, SunGard’s global trading business, told Markets Media. “While it continues to be dominated by block trading and phone orders, electronic trading is growing in importance.”
Demand for algorithmic trading and smart-order routing is surging as a result. TMX Group has launched dark order types and is launching TMX Select, an ATS. Alpha Group has launched its IntraSpread dark pool this summer; IntraSpread will function as a flow-through dark pool, with multiple price-improvement points.
Goldman Sachs’ Sigma X Canada implements a smart-order router designed to simplify trading in the Canadian marketplace where competing market venues have fragmented liquidity. Orders directed to Sigma X Canada will interact with other orders resting in the order book as well as orders passing through the ATS on the way to the public markets via the Goldman Sachs Execution and Clearing (GSEC) SOR for Canadian markets.
“Exchanges have shifted their business models and microstructure in order to make it more beneficial for high-frequency trading, and hence for algorithmic trading,” Daley said.
SunGard’s Fox River Execution subsidiary, a U.S agency-only equity broker-dealer, is developing algos specifically for Canada as part of a larger expansion in terms geography and products.
“We are expanding globally, and our first step is to create equity algos for Canada,” said Daley. “We are also expanding by underlying asset class, by adding options, futures, and potentially commodities and credit derivatives.”
The algos, to be made available by year-end, will enable Canadian and U.S. investors to uncover arbitrage companies for interlisted companies, that is, companies that are listed on both Canadian and U.S. exchanges.
“Within out U.S. customer base, there are a number of customers who are trading in Canadian equities, and have asked us to expand to Canada,” said Daley.
Based on discussions with Canadian investors, traders, and exchanges, Daley concluded that there was a need for high-quality algorithmic tools than the ones that were currently available in Canada, and that the philosophy embedded within Fox River’s execution systems would translate well to Canada.
Fox River Execution, as part of SunGard’s trading business, augments SunGard’s ability to provide customizable algorithmic trading solutions, Daley said.
Fox River complements SunGard’s Valdi, a global solution suite for multi-asset class trading, and the SunGard Global Network (SGN), a trade automation and connectivity network.
As a trader-focused company, Fox River’s “central insight is that most algos are backward-looking historical optimizations, lacking a forward-looking price predictive component,” said Daley.
That component is precisely what high-frequency trading strategies employ. “We are bringing HFT techniques to the buy-side,” he said.
Although Fox River is exporting its execution philosophy to Canada, the algorithms themselves will be developed specifically for Canada. “We are building our algos from scratch for the Canadian marketplace,” he said. “While it would be relatively easy to repurpose algos built for the U.S. marketplace for Canada, building algos tailored specifically for the Canadian market structure takes time.”
That requires an understanding of the nuances of the Canadian marketplace. “Stocks in Canada trade differently than those in the U.S.,” Daley said. “You can’t assume that a similarly-sized market cap name will trade the same in Canada as in the U.S.”