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February 2, 2012

Citi Rolls Out New Pairs Algo

By James Armstrong

Citi has introduced a new algorithm for pairs trading, allowing equity traders to execute market neutral strategies by simultaneously buying and selling highly correlated securities.

Citi's traders have had use of a pairs strategy for quite a long time now, but about five months ago the broker started offering the trading program to some clients using its Dagger product, a logic system which Citi turned into a full-fledged platform algo last year.

Citi is now offering the new pairs algo to all clients, and it is already available on the Portware and ConvergEx RealTick trading platforms. Young Kang, global head of algorithmic products at Citi, said other vendors will soon be offering the algo on their platforms as well.

Kang said the new algo is superior both to Citi's previous pairs offering and to pairs algos offered by competitors.

"If you look at the older pairs algos, what you'll find is that it's really rudimentary DMA logic," Kang said. "The quality of execution is much, much better using our newer pairs strategy, which leverages Dagger logic, than what you may find elsewhere."

As the market has become more correlated, with stocks tending to move in tandem, many firms are looking to take advantage of pairs trading, according to Kang.

 

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