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May 11, 2011

iPerX Algo Seeks Higher Recapture Rates

By John D'Antona Jr.

UAT, a Denver, Colo.--based financial technology company, has an algorithm that improves the commission recapture rates for the buyside.

"Commission recapture" is a process whereby a pension or mutual fund's sub-advised accounts lower the commission costs for trading by the money managers managing accounts. Trades may be directed to either low-cost execution brokers or to brokers who rebate a portion of the normal commission back to the account.

The "recapture rate" is the percentage of the total shares traded that is included the recapture process.

Currently, recapture programs aren't automated.

iPerX automates recapture programs to generate commission savings by implementing a rules-based process that examines orders real-time and, based on expected market impact, categorizes orders as "high touch" or "low touch" and then routes the low touch orders.

The iPerX algo looks to achieve triple the industry norm of 20 to 25 percent recapture rates, said Tom Warren, president at UAT.

"iPerX enables money managers to use an algorithm to automate the recapture order selection and trading process while eliminating manual involvement by traders," Warren said. "However, the buyside retains complete control over all order management and trading."

The practice of commission recapture involves brokers giving back a portion of the commissions they receive from money managers to the pension plan sponsor or underlying fund. The fund can then pass the savings back to plan participants or use it for other fund expenses.

 

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