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Article

Capturing Block Liquidity to Improve Algorithm Performance

Hitesh Mittal, Kathryn Sharpe and Nigam Saraiya
Trading Spring 2011, 2011 (1) 63-70
Hitesh Mittal
is a managing director and head of liquidity management at Investment Technology Group, Inc., in New York, NY.
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  • For correspondence: info@itg.com
Kathryn Sharpe
is a quantitative analyst in algorithmic trading at Investment Technology Group, Inc., in New York, NY.
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  • For correspondence: info@itg.com
Nigam Saraiya
is a vice president of algorithmic trading at Investment Technology Group, Inc., in New York, NY.
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  • For correspondence: info@itg.com
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Abstract

The authors discuss an advancement in algorithmic trading called block indication, also known as contingent or conditional orders. This concept implies the sending of non-binding indications of liquidity to a system that alerts a trader to a potential trade counterparty. The technique allows for algorithms to aggregate fragmented liquidity and helps create more natural crossing opportunities. In 2009, ITG integrated block crossing with its algorithms, allowing them to cross blocks with traders and other algorithms in its POSIT Alert® block crossing system. The benefit of this integration is then quantified, revealing that overall execution cost (versus arrival price) decreases approximately 10 bps if half the order is executed in blocks (holding order difficulty level and market conditions constant.) The methodology can be used by other broker-dealers as well.

  • Copyrignt © 2011 Investment Technology Group, Inc. All rights reserved. Not to be reproduced or retransmitted without permission.
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Capturing Block Liquidity to Improve Algorithm Performance
Hitesh Mittal, Kathryn Sharpe, Nigam Saraiya
Trading Mar 2011, 2011 (1) 63-70;

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Capturing Block Liquidity to Improve Algorithm Performance
Hitesh Mittal, Kathryn Sharpe, Nigam Saraiya
Trading Mar 2011, 2011 (1) 63-70;
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  • Article
    • Abstract
    • ALGORITHMIC TRADING HAS NEGATIVELY IMPACTED BLOCK TRADING
    • UNDERSTANDING BLOCK CROSSING NETWORKS: THE TYPICAL WORKFLOW
    • APPLYING THE BLOCK INDICATION MECHANISM TO ALGORITHMS
    • DOES BLOCK INTEGRATION HELP ALGORITHMIC PERFORMANCE?
    • BLOCK INDICATIONS AND THE REGULATORY CONTEXT
    • QUANTIFYING THE BENEFITS OF BLOCK CROSSING IN ALGORITHMIC CONTEXT
    • ENDNOTES
    • REFERENCES
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