Commentary

Robert Schuessler
Traders Magazine Online News

A Smarter Monkey

In this contributed piece, TIM noted that some traders do better than others when using data that has been run through certain analysis - that is, have used some form of machine learning to assist them.

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March 15, 2007

Specialist LaBranche Looks to Improve Algos

By Peter Chapman

New York Stock Exchange specialist LaBranche & Co. plans to roll out more sophisticated algorithms for trading in the Big Board's hybrid environment.

The move is expected to increase LaBranche's quoting and trading. That will increase the firm's revenues and make the exchange more competitive, according to Michael LaBranche, chief executive of the family firm.

"Our participation rate has declined to 10 percent in the hybrid market," LaBranche said in his latest quarterly call with analysts. "But we believe that we're going to be able to use tools to make that get back to historic levels."

The exec expects the new tools to push the firm's participation levels back to their pre-hybrid range of 15 to 20 percent. Hybrid kicked in late last year, and ratcheted up the speed of trading. That made it more difficult for specialists to keep up. The rudimentary nature of their early algorithms limited their ability to quote and trade in a timely fashion.

Going forward, LaBranche expects to roll out algorithms that enable it to quote at the best bid and offer more frequently, offer price improvement, and match the prices of away-markets.

"Being at the NBBO is very important," LaBranche said, "because that is what is going to attract order flow when Reg NMS goes into effect." Any increase in the frequency of LaBranche's participation in the market will make the New York more competitive, the exec added.

Indeed, observers have noted a decline in the frequency of price improvement received on orders sent to the New York since hybrid. That puts the exchange in danger of looking like just any other ECN, they say.