ConvergEx Group recently announced the launch of the first in a new series of portfolio algorithms, this one designed specifically for executing in domestic dark venues.
Dubbed Spectrum, the algo allows traders to maintain their required cash and sector balances, something ConvergEx says is not usually available in algos for dark markets.
"If you worked on a portfolio desk for the last five years, it’s been really frustrating," said Gary Ardell, head of the financial engineering and advanced trading solutions group at ConvergEx. "All your peers over on the single-stock desks have been using better and better dark technologies. But you couldn’t use them, because the cash constraints and the risk management were just too hard."
With most dark algos, almost anything can happen in terms of how quickly an order gets executed, Ardell said. That simply won’t do for portfolio traders, who need to precisely manage risk and cash balances.
Spectrum offers features that are included in many portfolio algos for lit markets but are not always available in the dark. For instance, it offers three separate cash objective options based on a customer’s preferred level of cash constraint, allowing them to make sure they are keeping the appropriate level of cash on their books for a portfolio.
The algo also supports three distinct settings for risk management, configuring to meet a user’s selected level of risk aversion.
Spectrum offers a Web-based performance interface that tracks user performance throughout the life cycle of each execution. It allows both high-touch and low-touch users to modify portfolio executions throughout the day.
Scott Daspin, a managing director in the electronic execution group at ConvergEx, said the system is in some ways an extension of a trader’s order management system or execution management system.
"A lot of the trading systems our customers use still do not let portfolio traders understand where they are and what they’re doing in pools throughout the day," Daspin said. "This is a live-streaming site where you can not only see your cash balance, but your residual or even your sector risk numbers. It will give our clients the ability to have more control over their portfolios."
Ardell said ConvergEx has further plans in the portfolio algo space: It expects to roll out at least three more portfolio algos next year. These will be designed for lit markets, but will be able to function in dark markets where appropriate, he said.
