Citi has introduced a new algorithm for pairs trading, allowing equity traders to execute market neutral strategies by simultaneously buying and selling highly correlated securities.
Internally, Citi has had a pairs strategy for a while, but about five months ago it started offering the algo to some of the clients using its Dagger product, which Citi turned into a full-fledged platform algo last year.
Citi, which announced the product on Tuesday, is now offering the new pairs algo to all clients, and it is already available on the Portware and ConvergEx RealTick trading platforms. Young Kang, global head of algorithmic products at Citi, said other vendors will soon be offering the algo on their platforms as well.
Kang said the product is a marked improvement over its previous pairs offering, which did not use the brains behind Citi’s Dagger platform.
"If you look at the older pairs algo, what you’ll find is that it’s really rudimentary DMA logic," Kang said. "The quality of execution is much, much better using our newer pairs strategy, which leverages Dagger logic, than what you may find elsewhere."
As the market has become more correlated, many firms are looking to take advantage of pairs trading, according to Kang. One benefit of the new algorithm, Kang added, is that it allows clients to leverage Citi’s core liquidity, including its internal crossing network, Citi Match.
Tim Reilly, head of North American electronic execution sales at Citi, said in a statement the algo had undergone extensive internal testing and would be a welcome addition to the firm’s offering of self-directed trading tools.
