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ALGO UPDATE: ITG Launches Enhanced Dark Aggregation Algorithm
Traders Magazine Online News, December 12, 2017
What’s old is new again in algorithms.
ITG has just rolled out the newest iteration of its Dark aggregation algorithm. The new twist is that this new version is not only designed to maximize dark block liquidity capture but also grab as much natural liquidity as it can. The firm says this upgraded Dark aggregator now snags 82% of ALL available midpoint U.S. block volume.
In a nutshell, Dark provides broad access to natural liquidity using an unbiased routing optimization across all major dark pools, and uses advanced segmentation strategies to find quality fills that minimize information leakage.
In speaking with Traders Magazine, Ben Polidore, Head of Algorithmic Trading Products at ITG, said Dark is built to help institutions trade large blocks of stock quicker and more efficiently. Citing his own data, Dark had client order sizes in the third quarter of 2017 that were 5.9% of average daily volume—64% higher than the industry average for dark aggregators.
Available now in North America, Dark now offers an enhanced workflow that provides traders with a new one-click block mode and control over order aggressiveness, order type usage, and minimum-fill thresholds with an intuitive urgency parameter. Traders have full transparency into real-time child order placement via Triton EMS or ITG’s web-based Prism tool.
“One of the most important issues facing global investors is the transaction cost created by unnecessary intermediation in our fragmented marketplace,” Polidore said. “Our goal with Dark is to consolidate the agency block market with an efficient and unbiased product designed to link buyside traders wherever they are.”
Also commenting on the rollout, ITG’s Global Head of Product, Brian Pomraning, added “the enhanced Dark algorithm demonstrates our commitment to investing in best-in-class execution, liquidity, analytics and workflow technology products to help our clients improve investment performance and increase operational efficiency.”
How long did it take to revamp Dark?
Polidore said ITG spent about a year working on this new iteration, which included new research surrounding information leakage and how to minimize it as well as new software development. For the research aspect of it, ITG wrote a new investigative paper that gauged leakage, looked at better ways to minimize it and how to incorporate the findings into Dark’s logic.
In its research paper, “Put a Lid on It,” ITG uncovered that Information leakage in the trading process is a major concern for traders. In a poll, it was revealed that 37% of buy-side traders attributed more than half of their trading costs to information leakage. The paper explained It is difficult to attribute information leakage to a single venue because most modern routers, ITG’s included, create routes to many venues proximate to any price move. Since it is possible to have information leakage without a fill—the most obvious example being lit quotes on exchange—any of the venues used before a price move could have been the cause.
So, what do you do?
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