UBS announced a new algorithm designed to help the buyside trade less liquid securities, such as U.S. small-cap stocks and Canadian equities.
The algo, dubbed "Swoop," employs a liquidity-seeking order type that has discretion to trade in both lit and dark venues when appropriate opportunities present themselves, such as a desired trade price and listed size becoming available. The algo allocates child orders to the markets and alternative trading venues that the firm identifies as the best sources of liquidity for these securities without creating a large price impact.
Because of the liquidity profile of these stocks and their price sensitivity when they trade, large price changes could alert others in the market there is activity in them. Traders want to reduce this trading footprint and shield their intentions from others in the market.
It is important that when liquidity in those stocks does become available, clients can quickly grab it and execute the order, according to Charles Susi, global co-head of direct execution at UBS. This algo, he added, enables buyside orders to sit "quietly" on the sidelines for extended periods and quickly execute when appropriate, when the liquidity is there.
"This algorithm is designed for any hard-to-trade stock," Susi said. "It’s great for small caps in the U.S., but also for any security that has an intermittent liquidity profile, such as certain mid-caps or REITs."
Traditional algorithms were built to trade on a schedule, which means they are not suited to appropriately capture unanticipated bursts of liquidity.
"There are a lot of symbols for which it is hard to gauge liquidity in advance," Susi said. "We found there was a gap in the market for algos that were not schedule-based."
UBS Swoop was launched in the U.S. at the end of February after four months of beta testing.
