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December 1, 2011

By By James Armstrong, John D'Antona Jr.,

> ConvergEx Portfolio Algo For Dark Pools

ConvergEx Group recently announced the launch of the first in a new series of portfolio algorithms, this one designed specifically for executing in domestic dark venues.

Dubbed Spectrum, the algo allows traders to maintain their required cash and sector balances, something ConvergEx says is not usually available in algos for dark markets.

"If you worked on a portfolio desk for the last five years, it's been really frustrating," said Gary Ardell, head of the financial engineering and advanced trading solutions group at ConvergEx. "All your peers over on the single-stock desks have been using better and better dark technologies. But you couldn't use them, because the cash constraints and the risk management were just too hard."

With most dark algos, an order can get executed quickly or remain pending for a considerable period of time, Ardell said. That simply won't do for portfolio traders, who need to precisely manage risk and cash balances, he said.

Spectrum offers features that are included in many portfolio algos for lit markets but are not always available in the dark. For instance, it offers three separate cash objective options based on a customer's preferred level of cash constraint, allowing them to make sure they are keeping the appropriate level of cash on their books for a portfolio.

The algo also supports three distinct settings for risk management, configuring to meet a user's selected level of risk aversion.

> Lime Acquires Cactus Trading

Lime Brokerage, a wholly owned subsidiary of Wedbush Securities, which caters to the high-frequency crowd, is buying Cactus Trading.

Cactus provides a low-latency, multi-asset-class trading engine, designed for implementation, testing and deployment of algorithmic trading strategies geared toward HFTs.

By integrating Cactus technology, Lime can now enable traders and quants to express their trading strategies in code, use that same code to back-test their strategies against historical data, simulate trading against live data and then move to production trading.

"We are committed to investing in and developing the Lime infrastructure so that clients can focus on trading and leave the technology to us," said Jeff Bell, chief executive of Lime.

Joe Signorelli, chief executive of Cactus Trading, and David Don, chief operating officer, will become managing directors at Lime Brokerage.

> Algo Monitor Watches for HFTs

Santa Barbara, Calif.-based HCMI has developed a real-time service for the buyside that scans the market for evidence of high-frequency traders and their computerized strategies.

HCMI is a customer of data provider Nanex. The underlying technology behind HFT Alert comes from Nanex, and HCMI distributes and supports HFT Alert software.

According to HCMI president Steve Hammer, HFT Alert monitors the smallest levels of algorithm activity in the marketplace at any given time by searching for "fluttering." Fluttering, Hammer said, is small changes in either the bid or ask price that are the precursor to a trade.

"HFTs are doing the fluttering," Hammer said. "The alert is an algo detection system that checks for various types of algo activity, such as fluttering or cycle repeaters."

Once it detects fluttering in either the bid or ask, HFT Alert sends an audiovisual alert on the user's desktop. Once the trader receives the notification, he can then modify his trading strategy. The system can monitor an unlimited number of stocks or a single stock that exhibits a high degree of message or quote traffic, usually in excess of 1,000 quotes per second.

Hammer added that fluttering can circumvent the national best bid and offer requirement mandated by Reg NMS. At one point in time, the new fluttered bid could be the best bid and the algo could execute a trade at one price on one exchange and at another fluttered price on another exchange.

"In essence, you have two NBBOs on two different exchanges," Hammer said. "Portfolio managers can use this to help to prevent front-running of their orders."

The system is targeted at the both the buyside and sellside.