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April 1, 2014

BofA Trims Options Algo Suite

The bulge firm has reduced the number of algos it's offering clients to make trading easier and more efficient.

By John D'Antona Jr.

Make it simple, stupid. That's what Bank of America is doing to its options algorithm suite. The bulge firm, in response to its institutional clientele, has reduced the number of algos it's offering clients to make trading easier and more efficient.

Prior to this, the firm offered nine algorithms to trade options. By simplifying its offering, BofA Merrill aims to provide more flexibility to traders by merging the functionality of several algorithms into four core strategies. Traders will no longer have to choose one capability at the expense of another; rather, they will be able to combine complimentary functions, Jonathan Werts, head of electronic derivatives at Bank of America Merrill Lynch, told Traders.

Jon Werts

"After years of offering lots of proprietary algos in response to client's needs, similar to what happened in the equities space, things got crowded and there were too many offerings," Werts said. Thus, the pare back.

Now the firm is offering clients four electronic trading strategies: Clean Sweep, Fast Sweep, Delta-Adjusted and Smart Spreads. The strategies have incorporated more flexibility while minimizing complexity and allow for full customization, according to Werts.

Also, fewer algos means sales traders, as well as their clients, will have an easier time navigating the firm's electronic products suite, he added.

Clean Sweep and Fast Sweep are liquidity-seeking algos that offer smart posting logic and aggressive liquidity capture. Fast Sweep is the more aggressive of the two, according to Meaghan Dugan, head of electronic derivative product management at Bank of America Merrill Lynch. The algo takes liquidity at the top of the book per venue up to the trader's limit, aggressively seeking liquidity. When it is no longer marketable, it will smart post. It is less price-sensitive.

After sweeping initial liquidity, Clean Sweep will look for additional liquidity available at the same price level at the same venue before either sweeping or posting to multiple venues.

Delta-Adjusted is the firm's adaptive algorithm that allows an order to dynamically update according to order-level parameters set by the user and the changing market. A user can set upward of six parameters: Algo Strategy, Starting Reference Price, Underlier Price, Options Delta, Underlier floor and Underlier ceiling.

Smart Spreads is the firm's multi-legged strategy that intelligently moves spread orders among multiple exchange complex order books in an effort to maximize fill rates. This algo's logic has been recently enhanced to better allow the algo to split parent orders into child orders for both liquidity seeking and passive orders.

 

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