PDQ ATS, the venue that helps the buyside amass liquidity by building an order book first and then holding an auction, is about to introduce its second auction model.
The new auction model, AUCTION1, is targeted at buysiders who want to trade larger orders – blocks – and are willing to wait a longer time to execute an order. The new auction will wait up to a full second for orders to be gathered before filling an order against the order book.
An order initiated auction, through AUCTION1, can interact with passive natural liquidity, algorithmic liquidity and market maker liquidity, at the choice of the client. AUCTION1 requires a 2500 share minimum to initiate an auction and responding orders must be 500 shares or greater.
In its original auction model, introduced back in November 2011 an order was held or paused between one to twenty milliseconds to create an auction book. Then after the 20 milliseconds, an order is executed against the trade book.
Rather than holding an order book of resting liquidity, PDQ ATS allows its community of liquidity providers to respond to order flow via their proprietary algorithmic trading procedures, generating competition for order flow. Now, liquidity seekers can choose the length of their wait.
Keith Ross, chief executive at PDQ ATS, told Traders that the new auction system is not replacing the existing model, but rather augmenting it.
“This new model is a high-speed, electronic auction designed for larger orders with heightened sensitivity to market impact,” Ross told Traders.
Both auctions look to thwart high-frequency traders who execute their trades at hyper-fast speeds and can often make trading blocks difficult by placing their small orders ahead of the buyside’s larger ones. This can often force an institutional order to be executed before it is optimal.
Chief among the characteristics of the new auction model is the one second pause, which allows the ATS to aggregate block liquidity and provides an opportunity to match venue customers with different latency sensitivities to help reverse the fragmentation of the markets, Ross added.
“Because the auction is up to one second, the time it runs will be random, which will diminish gaming possibilities,” Ross said. The average length of an auction, he added and expected, would be between 200 to 500 milliseconds.
The auction model will be aggregating natural orders and market makers conditional orders with a 2500 share minimum size needed to initiate auction, if one is seeking liquidity. Also, the seeker can set their own minimum size requirement as long as it is above the 2500 share mandated order size.
For those looking to provide liquidity, a 500 share minimum order size is required to participate in an auction.
This complements PDQ’s formation of an institutional equities trading group back in January in order to get the buyside’s business and its bigger trades. It hired two new ex-exchange pros to help get the new venture going, Peter Jenkins and James Ross, both NYSE Euronext alumni.