PDQ Brings Auction Model to ATS
Traders Magazine Online News, November 9, 2011
Chicago-based alternative trading system operator PDQ introduced an auction model that offers a pause before orders are filled.
According to PDQ, the auction model brings efficiency to the market by offering increased liquidity discovery and price improvement through an "electronic algorithmic crowd" competing for orders. This crowd enables liquidity-seeking firms to discover contra-side liquidity and assemble block interest from multiple firms simultaneously by asking the electronic version of "what is the market."
Rather than holding an order book of resting liquidity, PDQ ATS allows its community of liquidity providers to respond to order flow via their proprietary algorithmic trading procedures, generating competition for order flow.
"As the high-frequency marketplace has expanded at an increasingly rapid pace, the predominant thought process has been that faster is better," said Keith Ross, chief executive at PDQ. "PDQ shows that once high-frequency has been achieved, a small pause in the trading of an order can create a more efficient market structure."
This is how it works. When an order is received by PDQ's auction model, the order is paused for a full 20 milliseconds, and in that time algorithms respond with their most competitive quotes to build a mini book where the responses are prioritized on a price-time basis. At the end of the 20 milliseconds the trade is matched against the newly created book.
"We are very excited to be introducing the market's first auction model for high-frequency, electronic equity trading, as we believe it to be a true breakthrough in market efficiency," Ross said. "Clients also appreciate the complete anonymity and confidentiality that the PDQ process provides."
Ross was most recently chief executive of market-maker GETCO from 2002 to 2005 before moving to PDQ.
The PDQ ATS is powered by an algorithm-hosting facility and response mechanism that are designed to emulate the interaction of traditional pit floor brokers, while retaining the anonymity and confidentiality of a dark pool.
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