Commentary

Elaine Wah

Modern Markets, Modern Metrics - A Blog By IEX

In this blog by IEX's Elaine Wah, the newest public exchange looks to refute public claims that the metrics it uses are designed to inflate its own volume numbers and mislead people.

Traders Poll

In his first public speech, SEC Chair Jay Clayton deviated from his prepared remarks and offered his own "off the cuff" comments on market issues. Do you like this change of pace?




Free Site Registration

January 11, 2011

Head Trader at Janus Faces Challenges a "Mile High"

By John D'Antona Jr.

Also in this article

  • Head Trader at Janus Faces Challenges a "Mile High"

Jump in with both feet first. That's the mantra of Dan Royal, co-head of global trading at Denver-based Janus Capital Group.

Dan Royal

The triathlete, who's competed in two Ironman competitions, embraces a challenge. Whether he's running a marathon or looking for way to improve the trading desk, Royal doesn't waste time when he sees ways to improve performance.

And his operation is a sprawling one. Royal oversees seven Denver-based traders, two traders in London and a pair in Singapore. That entails a broker list of 166 firms, seven electronic crossing networks, 18 different algorithmic vendors and 160 unique algorithms--enough to make one's head spin. He shares the privilege with Craig Brown, who co-heads the group and runs trading operations.

Royal's first challenge is to unify operations, like the various execution management systems around the globe. And a big part of his job will be paring down the numerous algorithms on those platforms.

His goal is to organize Janus' algorithms into a few easily identifiable groups, segregated by characteristics such as passive or aggressive strategies. From there, he plans to internally rename the algos to avoid the sometimes distracting and confusing labels with which brokers have branded their products. Janus wants to "white label" algos so that traders can focus more on how they works and perform, rather than on the algos' brands.

"With all these algos, we have a lot of dilution and noise," Royal said. "I want to get to the point where we have only 30 to 40 different algos from our current level."

Once the algo list is pared down, Royal and his traders will analyze and compare algo performance and use the cream of the crop for best execution.

Royal expects the next phase of algo development will assist him in risk management and have built-in risk prevention protocols. This would allow his traders to navigate the market more easily and avoid adverse price selection. The key is finding the right balance between protection and flexibility, he said.

"We need algos that provide us with enough latitude to do our job, but that will protect us at the same time," he said. Royal plans to implement algorithms that embed trading collars at the child order level, as well as require traders to input explicit limits at the time of the order placement. If a limit is hit, the algorithm will pause--giving a trader a moment to decide to continue trading, change algorithms or alter his strategy.

Using algos is a far cry from where Royal began his financial career, back in 1984, as a runner on the floor of the Chicago Mercantile Exchange for Cargill Investor Services. Rising through the ranks over 10 years there, he found himself running the foreign exchange floor operations using pencil, paper and his gut.