Algo Update: DASHing Towards Transparency

With a click of a mouse, traders can see exactly how and why a trade was executed via Dash Financial's system.

Perhaps the biggest buyside buzzword when it comes to algorithms and order routing is transparency. And now, Dash Financial’s new system is providing traders granular data on all aspects of its algorithms and smart-order routing performance.

From order placement, splitting and routing management to final execution, cost and compliance, Dash is giving the buyside exactly what it has been clamoring for, David Karat, the company’s head of sales and marketing, told Traders. And it doesn’t matter what order or execution management system a trader uses; Dash will give traders a real-time peek at what exactly is going on with their trades.

“Transparency – that’s the core tenet of our business,” Karat said. “We’re agnostic as to the front-end a trader uses whether it is say REDI, RealTick, Bloomberg, Eze, etc. We execute electronically and show traders everything we are doing in real-time via our Dashboard.”

Formed in 2011, DASH launched its real-time Web-based trading dashboard with claims that it provided 100 percent transparency into all aspects of routing and execution on a limited basis. Now, Karat told Traders that the firm is hitting the ground running and engaging both the sellside and buyside on its Web-based system.

Via the Dash system, buyside or sellside traders can now see the once-opaque methodology on how Dash executed a trade, why an order was split up and routed, and to which venues and why. Traders can simply click on an order or trade, and see the complete breakdown of order types used, amount traded, what a particular venue’s trade processing fee and rebate were, etc. No information is withheld or unavailable.

Karat noted that the disclosure of the rebate was of particular note to traders, as they can now see if an order was truly routed in their best interest. For some time, there have been complaints from the buyside that brokers often route their orders to the trading venue where the broker can get the best rebate – not the best price. By seeing the true economics of a trade, and how the order was routed and executed any conflicts of interest would become readily apparent

“Everyone talks about and sells ‘transparency’ – but there are different shades of it”. Karat said. “We believe in complete and total transparency in real time. We show our clients everything from our strategy decisions, our FIX messages, execution costs broken down by type at the child-order level – everything.”

And Karat is no stranger to electronic trading or the broker routing debate. He started his career with Societe Generale in 1995 and then moved over to ITG in 1999, where he spent almost 10 years. From there, he spent some time at Credit Suisse before founding DASH in 2009 with his partners. He is familiar with many aspects of the trading cycle – from pre- and post-trade analysis products through algorithmic execution tools to clearing.

“If you are a true agent to your customer, the customer should be in a position to review the entire life cycle of the order and the resulting economics,” Karat said. “They should see where you went, even if you don’t get a fill.”

And that is where the brokers fell short, he added, thanks to commission compression and the commoditization of low-touch trading incentives are no longer aligned with the end client.

“We felt that if we built a business where we are truly transparent with the client as to what and why we are doing it, then they would come to DASH.”

In some instances, he added, clients could actually get a check back from Dash on the rebates, whereas the broker would normally keep it. This, Karat said, shows that the firm is a pure agency broker, has no prop trading business and doesn’t sell order flow.

Dash was founded to address the inherent issues prevalent in the U.S. Options Market. While they offer a routing and algorithmic suite for cash equities in the U.S., they felt that the added complexity of the listed options space created more obvious opportunities to release products and solutions that enhance liquidity capture and fee mitigation.

And for traders who want a more bespoke algorithm, Dash has created strategies with “open end” technology – that is, a trader can customize a strategy to his particular needs with DASH’s help.

“We’ve built flexibility in the architecture, enabling us to configure different behaviors, such as venue choice, order type, methodology, etc.”, Karat said. “User[s] can define some of these variables – open up an algo without completely recoding it. All we have to do is change the dials in the algo’s settings.”