Institutional broker Weeden has released a new algorithm designed to capitalize on the increased trading activity near and at the equity market close.
The algorithm, CloseIQ, is designed to intelligently take advantage of the increased volume, tighter spreads, and lower volatility towards the end of the trading session, according to David Margulies, head of the electronic products group at Weeden & Co.
“Given the dramatic shift in volume during the last 30 minutes of the trading day, many of our clients were asking for a better way to trade into the close and take advantage of this changing volume pattern,” Margulies said.
Margulies cited an internal statistic that showed 21 percent of daily trading activity now takes place in the last 30 minutes of the trading day. This is up from 12 percent in 2007. The algo is specifically designed to take advantage of the end-of-day increase in liquidity.
How does CloseIQ do this?
Based on the size and liquidity characteristics of the stock, CloseIQ will automatically choose the appropriate start time of the order while placing an optimally sized portion in the closing auction. For stocks that are NYSE listed, clients will also have the option to take advantage of d-Quote order types, which allow for modifications or cancellations after the exchange cutoff time of 3:45 p.m. ET.
By incorporating the d-Quote order type into the algo, clients can have more flexibility in choosing the appropriate size of an order to place on the close after analyzing the NYSE imbalance data.
Marguiles explained the d-Quote is an order type that was previously only available to NYSE floor brokers. By using the d-Quote, the trader can modify his order via the floor broker after the 3:45 pm exchange cutoff based on updated information. This allows the trader the opportunity to decide whether or not to continue with CloseIQ’s methodology or modify the order via the floor broker, he added.
Alongside the rollout of CloseIQ, Weeden has added some anti-high-frequency technology into its existing algorithmic trading strategies. The firm has incorporated new logic that analyzes a stock’s liquidity characteristics and intra-day signals, such as momentum and short-term alpha to dynamically react and adapt to real-time trading activity.
