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January 3, 2006

Algorithmic Trading Systems and Solutions - Q & A

By Editorial Staff

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The following Algorithm Q&A Special Report was crafted after conversations with the Buy and Sell sides of the Institutional Trading Community. This Report is not a re-hash of all things Algo, but rather the tough questions with candid answers from industry professionals. The purpose of the Report is to assist you in your product/solution purchasing decisions.

Q: What new type of algorithms is your firm working on right now? How important will customizing algorithms for clients be in the future?

Frank Brown, EdgeTrade:

EdgeTrade recently launched Sumo, a smart order execution algorithm that offers traders the ease of issuing single orders for aggressive, timely execution, while overcoming some of the inherent limitations of single market and limit orders. Sumo electronically micro-manages the process of determining how much of an order to send out at any one time for execution, and the destinations where these pieces should be sent. Customizing algorithms for clients is a cornerstone of EdgeTrade's business. Traders have different styles and trade for various reasons; they want algorithms that will support their approach. Traders are very open with us about their trading goals, as they know EdgeTrade's agency model means we will never take advantage of information they reveal to us.

Carl Carrie, JP Morgan:

We're very excited about the launch of our algorithm for portfolios-TAO. TAO, short for Trading Algorithmic Optimizer, is the industry's first algorithmic tool that integrates an interactive module for pre, post and concurrent analytics with an Optimizer that generates changing algorithmic parameters as the markets move. TAO handles a variety of trading constraints and can cash balance while managing risk and cost. To accomplish this, it uses a dynamically changing efficient trading frontier and a proprietary high-speed optimizer, bolstered by a high performance distributed computing backend to ensure maximum speed and resiliency.

We are also preparing to introduce a new family of algorithms that includes 2nd generation liquidity-seeking techniques. These would leverage dark books, crossing engines and more sophisticated micro-order submission models.

John Coulter, Vhayu:

Vhayu VelocityTM is a platform for algorithmic trading which simultaneously analyzes and stores financial market data to enable trading applications to achieve best execution with zero latency. CSFB, BofA, Goldman, and other industry leaders have a huge lead in providing algorithmic trading tools for distribution to their buy-side customers. They've spent decades of man-years and millions of dollars perfecting strategies and building the infrastructure capable of handing such massive amounts of tick data. Our algorithmic trading platform levels the playing field by giving brokers of all sizes an out-of-the-box solution without requiring an army of programmers. VelocityTM provides data feed handlers, a patented data store to allow the data to be analyzed and stored in memory simultaneously, flexible APIs to write and test your own algorithms, a customizable VWAP Trading engine and an Event Driven Interface for publishing complex analytics or automated transactions out to trading applications.

Brian Fagen, Morgan Stanley: