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January 18, 2012

PDQ Brings Auctions to ATS

By John D'Antona Jr.

Chicago-based alternative trading system operator PDQ introduced an ATS that deploys an auction model that offers a pause before orders are filled.

The auction model brings efficiency to the market by offering increased liquidity discovery and price improvement through an "electronic algorithmic crowd" competing for orders. This crowd enables liquidity-seeking firms to discover contra-side liquidity and assemble block interest from multiple firms simultaneously by asking the electronic version of "what is the market."

Rather than holding an order book of resting liquidity, PDQ ATS allows its liquidity providers to respond to order flow via their proprietary algorithmic trading procedures, generating competition for order flow.

"PDQ shows that once high-frequency has been achieved, a small pause in the trading of an order can create a more efficient market structure," said PDA chief executive Keith Ross.

When an order is received by PDQ's auction model, the order is paused for 20 milliseconds, and in that time algorithms respond with their most competitive quotes to build a mini book where the responses are prioritized on a price-time basis. At the end of the pause, the trade is matched against the newly created book.

The PDQ ATS is powered by an algorithm-hosting facility and response mechanism that are designed to emulate the interaction of traditional pit floor brokers, while retaining the anonymity and confidentiality of a dark pool.

 

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