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.

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June 1, 2011

Goldman Sachs' Ingrid Tierens Discusses ...

Ingrid Tierens, co-head of the electronic trading "strats" Group at Goldman Sachs Electronic Trading (GSET), spoke with Traders Magazine recently about new developments in the world of algorithmic and electronic trading. Among the topics discussed were: the next generation of algorithms, algorithmic testing and venue toxicity.

Ingrid Tierens

 

On new trends in algorithms

I would say a couple of trends in the algo space are noteworthy. First, clients are asking for increased transparency as to what is happening with their electronic orders. We are getting more and more requests related to how we end up choosing one venue over another, how our order placement logic works, etc. We haven't waited for clients to reach out to us - we've done this proactively and published a lot of research around the turn of the year on this. We are trying to provide a framework on how to think about order routing and to help bridge the knowledge gap by providing clients with metrics to help them think about how this all works. We go as far as developing client-tailored analyses. This has been a theme we've seen over the last 12 to 18 months.

 

On new types of execution quality analysis

We examine price dynamics around a client's order flow. A couple of years back a typical report would mainly tell a client his shortfall relative to when the order originally came into the broker and whether the stock either moved up or down during the rest of the trading day. Now, we look at orders in much more granularity and examine price movements relative to the first execution, relative to the average execution and to the last execution. We check to see if there is momentum or reversal and if we are actually impacting the price by trading too aggressively. We are going into much more detail beyond what a client might have been satisfied with a few years back.

For those clients who are more fundamentally driven and enter into large positions in a specific name traded over multiple days, we'll look at the analysis through a process we call "multi-day re-stitching." In addition to providing separate metrics for the portion of the trade done on day one, the portion of the trade done on day two etc., we re-stitch these trades over these multiple days and provide analysis benchmarked to the time the order came in on day one. In looking at trades in a re-stitched fashion versus an unstitched fashion, we may come up with very different conclusions. Clients don't want to just look myopically at one single trading day but rather how their trading behavior is affecting the name they are trading over the full trading horizon.

 

On trading venue toxicity

We've identified a number of metrics to examine one venue versus another. One we've come up with is what we call the "bad fill ratio." It's a measure of toxicity that looks after an execution happens whether or not the price of a stock is more or less often moving against us. Toxicity is only one dimension to compare venues. We also focus a lot on how fill rates differ across different venues. Both are quantitative numbers and we can compare them across venues and time and make routing decisions on the back of those comparisons. We analyze them on a regular basis and that helps us decide if we need to make changes to our routing logic.

 

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