Neonet has combined the best of its liquidity-seeking algorithms and created a hybrid that seeks liquidity first in the opaque markets and then on the public exchanges.
The firms newest algorithm, dubbed Capture, is the latest addition to its growing stable of software designed to help the buyside source liquidity. Best described to Traders as a hybrid algorithm by Neonets chief executive Tim Wildenberg, the strategy combines the best of the firms standard VWAP, implementation shortfall and percentage of volume offerings.
Capture is targeted at European liquidity and our European customers, where most of our business still is, Wildenberg said.
Most of Neonets clients are based in Europe, thus the thrust of the marketing push. Capture and other algorithms could find their way to U.S. shores, but at the present time the firm has no chaperone agreement filed with regulators allowing U.S. broker-dealers to trade with the strategies. U.S. brokers can get access to Capture and other algos via a European broker-dealer that is licensed on both sides of the Atlantic.
So how does Capture work?
Capture scans the dark pools and exchanges in its search for liquidity. Wildenberg said the software is designed to leverage a number of underlying algorithmic models and methodologies across both dark and lit markets, depending on the client’s urgency to complete the order.
If a trader wants to fill an order quickly, he can set Captures aggressiveness setting so that it searches out dark liquidity first and executes an order. If an order is less urgent, it will scan the public lit venues first before moving or remain in the open marketplace.
Capture allows clients to tune the aggressiveness level – from 1 [most passive] to 5 [most aggressive], Wildenberg told Traders. Also, a trader can add or select venues that Capture searches for liquidity.
The middle of the settings range – between 2 and 4 – is where Neonet mined its other algorithms for ways and solutions to make the strategy flexible.
We looked at the other algorithms and have taken the smarts incorporated in them with regards to market microstructure and predictive stick technology, Wildenberg explained. Capture has elements of VWAP, IS and POV all in it. Capture took about nine months to conceptualize, develop, create and beta-test before being made available.
This, Wildenberg added, was where Neonet wanted to go with its next generation of algorithms – make something less vanilla for traders. This type of adjustable or customizable strategy fulfills many traders requests.
The addition of Capture follows the firm’s comments to Traders in 2014 that Neonet would be bringing more algorithms to the market, first in Europe and then eventually in the U.S. Back then, Wildenberg told Traders that the firm wanted to get its feet wet by offering its clients several algorithms to execute trades, starting with the basic VWAP, TWAP and implementation shortfall types. Wildenberg also told Traders that Neonet would in the future offer more sophisticated strategies such as liquidity-seeking or other enhanced offerings.
