Commentary

Tim Quast
Traders Magazine Online News

We're All HFTs Now

In this guest commentary, author Tim Quast looks back at the history of HFT and how the market has evolved to where many firms now fit the definition of high-frequency trader.

Traders Poll

Are you in favor of a pilot program and examination of the rebate system by the SEC?




Free Site Registration

September 10, 2007

ITG Unveils New Portfolio Algo

By James Ramage

Agency brokerage Investment Technology Group thinks an algorithm should be able to consider more than just single-stock events or a benchmark when helping portfolio traders. The agency brokerage's new Dynamic Implementation Shortfall algorithm, or Dynamic IS, lets an asset manager select for sector, time or speed-based parameters. It then acts immediately on liquidity, spread or volatility information to execute the portfolio over one or more days. In doing so, it tries to think of everything as it works to maintain balance with a manager's industry and sector exposures, minimize trading costs and generally manage risk.

"We're looking at the portfolio as it goes through the trading day, and how that strategy (for it) will change based on market conditions," says Tony Huck, managing director at ITG. By comparison, most static list-based implementation shortfall algos follow a predetermined trading schedule based on historic volatility and liquidity estimates. The algo should help managers with large, two-sided portfolios balance their sector exposures. "They didn't want to get into a situation where maybe, blindly, they were buying automotives on one side, yet they weren't maintaining that exposure on the sell side of the portfolio," Huck says. "Or, typically they were buying and they had already sold automotives on the other side."