Robert Hegarty
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Reinventing Trading Venues: How AI Can Help Create a More Efficient Market

In this whitepaper shared with Traders Magazine, the Hegarty Group examines how artificial intelligence and machine learning can help traders execute more efficiently.

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June 20, 2005

Algorithms For Everybody Else

By Peter Chapman

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Pragma Financial Systems wants to bring algorithms to the common man.

Pragma Financial Systems wants to bring algorithms to the common man. A five-man vendor based in New York, Pragma is marketing algorithmic trading software to broker-dealers and money managers. Today control of most algorithms is in the hands of a select few bulge-bracket shops. "The smaller broker dealers don't have the algorithms that the banks have," says Lee Maclin, a Pragma partner, "and their clients are going to the banks which are delivering the service cheaply. So, they feel pressure to implement it."

Pragma is not the only organization marketing algorithms to brokers. However, it is possibly the only vendor with a purely algorithmic trading product. Two big banks Credit Suisse First Boston and Banc of America Securities offer their trading technology to other brokers. One vendor FlexTrade Systems is building algorithmic trading functionality into its portfolio trading system.

Brokers without proprietary algorithmic trading infrastructures are opting for third party offerings. Both CIBC World Markets and Knight Capital Group, for instance, offer third party algorithms to their clients under so-called "white-label" agreements.

CIBC and Knight affix their brands to the services. The source of the technology need not be disclosed. CIBC gets its algorithms from Banc of America. Knight would not disclose its supplier.

Pragmatic POV

Pragma is targeting the buyside as well as the sellside. For the buyside, its plan is to license the technology. For the sellside, it may price on a transaction basis, according to Maclin. To that end, Pragma is in the process of establishing a broker-dealer.

Pragma's technology has been in production for about a year. A Pragma customer is "one of the largest users of algorithms on the Street," Maclin says, although he won't disclose the name. The firm has integrated its system with those of direct access suppliers Neovest and Lime Brokerage.

'The whole concept excited me right away.'

Lee Maclin, Pragma Financial Systems