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ALGO UPDATE: Cowen's SEEK Searches Dark for Blocks Using Conditional Orders

Traders Magazine Online News, May 31, 2017

John D'Antona Jr.

Those who seek shall find. Block liquidity, that is.

The buy-side for years has lamented its inability to find large blocks of stock – either due to HFTs picking them off, fragmentation or a broker’s lack of market reach – and will employ electronic or human means to find a natural fill. Now, traders are getting a new electronic strategy from Cowen & Co. for those who prefer to work their order in the dark pools.

Enter Block SEEK.

Block SEEK is an electronic dark block liquidity seeking strategy that uses conditional orders, which Cowen has recently implemented in other circumstances. Block SEEK users will be able to simultaneously access 10 dark pools with conditional orders, continue to work their order at additional dark pools with higher minimum quantities and directly route to the market’s newest exchange, IEX.

Jennifer Hadiaris

“The strategy is meant to target block liquidity, minimize information leakage, and help manage the work flow of direct-routing order flow to several different block venues,” explained Jennifer Hadiaris, Cowen’s Global Head of Market Structure.  

So how does it work?

The underlying technology is called SEEK1, the firm’s dark liquidity seeker, which will only execute at midpoint or better. The algo accesses 17 dark venues via SEEK and traders can set which venues it looks at.

The algo’s resting dark liquidity is routed in conjunction with the firm’s dark heat map technology. Resting orders are set at a default 1,000 share minimum but can be customized to the trader’s specific needs.

“This means that we will rest orders in the pools that have had more market share in that name or subsector in the most recent FINRA dark pool data,” Hadiaris explained. “As we see fills in that symbol throughout the life of the order, or over the day, that fill information will supersede the heat map. So, we will overweight the venues where we have been seeing the most success finding a contra-side.  This fill-based learning continues throughout the day, so it will persist if a client re-loads an order or anyone else using Cowen algos has traded the same symbol using another strategy that day.”

Conditional orders will rest in 10 ATSs, representing up to 100% of the order in each venue. These 10 ATS also represented over 60% of total block executions (>10,000 shares) in ATSs in Q1 2017. Conditional orders will have a minimum execution quantity of 1,000 shares or higher, depending on the size of the parent order.  

“Conditional orders solve the problem of allocation by allowing the strategy to post up to the whole parent order quantity to multiple venues at the same time without the risk of over-execution,” Hadiaris said.” This increases the opportunity for executing in larger blocks. When using conditionals via algorithms, the order can continue to work elsewhere via the underlying algorithm, while also having the opportunity to participate in larger block executions.” 

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