Group Co.
ALGO UPDATE: SURGE CAPTURE Snags Block Liquidity in Wake of Large Trades
Traders Magazine Online News, June 28, 2017
Got blocks?
Maybe a trader missed the opportunity to get in on a block trade at particular venue. Perhaps it was seller size. Could’ve been adverse selection kicked in as your order finally got to the top of the queue. Thanks to Liquidnet, traders now might be able to still get their block trade on with the help of a new algorithm called Surge Capture.
Rob Laible
Built to take advantage of the increased volume and volatility that occurs in the market immediately following a block trade, Surge Capture soaks up additional liquidity by seamlessly placing a specially designed order in the market for any unfilled shares immediately after an initial block executes, explained Rob Liable, Liquidnet’s Global Head of Equity Strategy. He told Traders Magazine that often a completed block trade leaves in its wake other unfilled block orders – and this is where the algo kicks in.
“Block trades trigger a ripple effect in the equity markets, with the initial block often being a catalyst for a cluster of more block executions, particularly in the first few minutes afterward,” Liable said. “Surge Capture allows our clients to automatically take immediate advantage of this phenomenon, putting them in position to benefit from positive price swings rather than trying to react to them. Finding that unique block in Liquidnet and opportunistically capturing additional liquidity without impact is truly a win-win for our clients.”
What’s Surge Capture?
Surge Capture, in its simplest form, is a new algorithm soaks up the additional liquidity left in the wake of a block trade from orders that didn’t initially get filled. This new algo is the first trading solution to launch out of Liquidnet’s new innovation hub, Liquidnet Labs. It is here in the firm’s skunkworks that new tools are created tested – not just by Liquidnet but by traders too – and sent to market. Changes can be made virtually real-time and sent right out for actual usage.
“We’ve done white papers on volume before and after a block trade, and we’ve seen there is volatility after the block trade as other algos have volatility or volume-based components that want to get filled,” Laible said, “or they need to cross a spread. We’ve found that blocks do tend to cluster around one another which can trigger another block trade.”
So, Surge Capture works based on assumption a block trade has already happened, but looks to get block trade done off excess block volume.
“Surge Capture is an algo but think of it as a linkage to the block trade,” Laible explained. “This is the first of other components and services that are part of the Virtual High Touch suite.”
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