Brokers Code Dark Pool Routing Into All Algorithmic Trading Strategies

As buy-side traders increasingly voice concerns about information leakage, many brokers have coded all of their algorithmic strategies to search for liquidity in dark pools, which match trades anonymously without publishing a quote, preventing trades from moving the markets.

Up until about a year ago, brokers provided "pure-play" dark pool algorithms that were specifically designed to source and consolidate liquidity from dark pools. Credit Suisse, for example, offered Guerrilla and Sniper, while Citi offered Scouter and Instinet had Nighthawk.

Because of the success of these algos, however, Credit Suisse Advanced Execution Services (AES) decided to separate the dark pool aggregation code from Guerrilla and add it to other algorithms and electronic trading strategies. As a result, in January 2007, Credit Suisse launched CrossFinder+, an algorithm that posts liquidity to and takes liquidity from multiple dark pools. While clients can leverage the stand-alone algorithm, all other AES algorithms also use the CrossFinder+ technology. "The whole objective with CrossFinder+ is to maximize liquidity from dark pools, not move the market and get the best prices," says Dmitri Galiametidinov, a director at AES.

Similarly, Instinet integrated dark pool aggregation into all of its algorithms in October 2007, following the completion of its merger with Nomura Securities. "Dark pool access is clearly a very significant part of algorithmic trading, and we thought our clients should not have to access two separate algorithms to get dark pool access," explains John Comerford, EVP and global head of trading research at Instinet. After Instinet integrated its algorithms with the Nomura algorithmic trading platform, it began to systematically roll out the capability, he adds.

"The dark pool aggregation [now] is native to all [of our] algorithms," Comerford continues. "Every single algorithm that [clients] have can interact with dark pools, including our portfolio algorithms."

Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio