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April 2, 2012

Algo Swoops In on Low Volume Securities

By John D'Antona Jr.

UBS announced a new algorithm designed to help the buyside trade less-liquid securities, such as U.S. small-cap stocks and Canadian equities.

The algo, dubbed Swoop, employs a liquidity-seeking order type that has discretion to trade in both lit and dark venues when appropriate opportunities present themselves, such as a desired trade price and listed size becoming available. The algo allocates child orders to the markets and alternative trading venues that the firm identifies as the best sources of liquidity for these securities without creating a large price impact.

Because of the liquidity profile of these stocks and their price sensitivity when they trade, large price changes could alert others in the market there is activity in them.

It is important that when liquidity in those stocks does become available, clients can quickly grab it and execute the order, said Charles Susi, global co-head of direct execution at UBS. This algo, he added, enables buyside orders to sit "quietly" on the sidelines for extended periods and execute when liquidity appears.

"This algorithm is designed for any hard-to-trade stock," Susi said. "It's great for small caps in the U.S., but also for any security that has an intermittent liquidity profile."

UBS Swoop was launched in the U.S. at the end of February after four months of beta testing.

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