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May 1, 2013

ITG Adds Anti-Gaming to Dark Pool

By John D'Antona Jr.

ITG has added anti-gaming technology into the operation of its POSIT dark pool, to protect institutional traders from high-frequency trading firms trying to sniff out their orders.

The agency broker's service, dubbed "Liquidity Guard for POSIT," is designed to detect potentially "toxic" orders from high-frequency traders or day traders that drive up costs for institutions. The service then prevents those toxic orders from interacting with "natural" orders from other institutions, said Jamie Selway, managing director and head of electronic brokerage at ITG.

Driven by customer concern, some dark pool operators are scrutinizing their inflows for signs of gaming or taking advantage of market structure or loopholes to gain a trading advantage.

"This is targeted at those sources of flow that systematically employ aggressive or toxic trading strategies," Selway said.

POSIT's Liquidity Guard operates using a two-pronged strategy focusing on prevention and detection.

First, Liquidity Guard pro-actively avoids bad executions by comparing current market activity against historical trading and identifying abnormal pricing. Second, the technology provides a post-trade analysis and looks for and identifies outliers to the normal trading pattern that might indicate gaming by a party. 

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