ITG Algo Acts on Action at Market Close
February 6, 2013
Investment Technology Group rolled out an algorithm designed to help traders capitalize on the increased amount of trading volume and price action at the equity market close.
The new algo, dubbed ITG Dynamic Close, looks to reduce the price impact from over-participation at the equity market close on NYSE and NASDAQ closing auctions. This is when there is a high degree of trading. The algo is specifically tailored to the processes of each exchange and employs data from real-time imbalance feeds and responds to these changes and executes orders where appropriate.
Balcidore
This algorithm follows in the footsteps of the broker's Dynamic Open algo, which it released last April. That algo is also targeted at helping traders tap the liquidity available during opening auctions of the New York Stock Exchange and Nasdaq.
Jeff Bacidore, ITG managing director and head of algorithmic trading, said that historically, algorithms have not been as thoughtful in terms of how they interact with the market close imbalance information and how much impact they might have at that time.
"Like with Dynamic Open, we wanted to revisit the way algos work at the close," Bacidore said. "Our research demonstrates that traders targeting the close should focus more of their open market trading to the period before the imbalance announcement, not just prior to the close itself. By focusing on the close, we found it's often too late and the market has already priced in a market imbalance, affecting best execution."
He added that unlike other algorithms, Dynamic Close tries to predict how large orders will affect market price prior to the 3:45pm and 3:50 pm imbalance announcements by NYSE and Nasdaq, respectively.
"We found that big orders placed prior to close auction has a big impact, but the effect occurs earlier when market learns of order, not so much when the exchanges announce imbalance," Bacidore said. In essence, Dynamic Close tries to trade before imbalance information is out there, he added. "When the order comes in then the algorithm decides whether or not to send it to the closing auction."
The algo, like Dynamic Open, is available via ITG's Triton execution management system and also via FIX connection to ITG from third-party trading systems.
