Download
Skip this Video
1 / 14
High Frequency Trading Tools and Technologies - PowerPoint PPT Presentation
- 176 Views
- Uploaded on
High Frequency Trading Tools and Technologies. Presented by Larry Tabb (Founder & CEO). Agenda. To the winners go the spoils Buy-side needs multiple tools Tools Dark pools Flash Sponsored access Technologies. Different trades need different tools. Low Impact (size)
Download Presentation 
An Image/Link below is provided (as is) to download presentation
PowerPoint Slideshow about 'High Frequency Trading Tools and Technologies' - cynthia-mcmahon
An Image/Link below is provided (as is) to download presentation
Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.
While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.
- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
Agenda
- To the winners go the spoils
- Buy-side needs multiple tools
- Tools
- Dark pools
- Flash
- Sponsored access
- Technologies
Different trades need different tools
Low Impact (size)
1) Blocks/Dark pools
2) Dark Algorithms
Quiet Accumulation
1) Dark / Opportunistic Algorithms
2) Blocks/Dark pools
3) Broker Capital
Size
- Delegation
- VWAP/Implementation Shortfall Algorithms
- 2) Direct Market Access
Need it, want it, got to have it
1) Direct Market Access
2) Accumulation Algorithms
3) Broker Capital
Immediacy
Source: TABB Group
Dark pools are steadily gaining market share in both the US and Europe
12.5%
11.5%
10%
% Traded
Volume
(dark)
7.5%
7%
5%
4%
3%
2%
2%
1.5%
No. of
Dark
Venues
1%
18
3
27
4
32
9
45
21
52
29
53
36
2005
2006
2007
2008
2009
2010
US
Europe
Source: TABB Group Estimate
Exchange
Broker
1 of 9
When trading at the exchange, you are competing against the marketplaceBrokers, Buy-side, Prop, and Other
Bidders for Liquidity
Buy-side/
Investors/
Liquidity takers
Source: TABB Group
Exchange
Broker
1 of 9
1 of 1
In a dark pool, you get first look, and generally better than market pricingBroker
Brokers, Buy-side, Prop, and Other
Bidders for Liquidity
Buy-side/
Investors/
Liquidity takers
Broker
Dark
Pool
Source: TABB Group
HFT Tools
- Co-lo
- Being first is everything
- Low latency connectivity
- Fiber and networking
- Market Data infrastructure
- Direct feeds
- CEP
- Models
- Execution engine
- Risk modeling
Flash orders – a second chance to match orders before they are routed
Not best bid
Sell
Sell
Exchange w/oBest Price
Will match or better bid?
Retail
Investor
Retail
Broker
FreeExecution
Market MakerLiquidity Provider
25 to 30cents/100Shares
Yes / Trade
Market Maker
Liquidity Provider
Best bid
No /
No Trade
Exchange w/Best Price
Problem is if MM/LP executes against the better price and/or changes quote
- Retail Order Execution Using Flash Order
- Retail order comes into broker
- Broker routes order to ECN/Exchange using “Flash Order”
- If ECN/Exchange does not have the best price it either needs to match the best price or send to the Exchange/ECN displaying the best price (Reg NMS) – maximum time .5 seconds
- Since the ECN/ Exchange doesn’t have best price it flashes order to market markers/liquidity providers (typical time .02 to .05 seconds)
- If MM/LP wants the order it either needs to match or better bid
- If not – order must be routed to exchange showing best price
- Typical flash order is free – typical charge to route order to another ECN/Exchange is 25 to 30 cents per 100 shares
- The challenge with this order is that the market maker / liquidity provider gets to see this order up to .5 seconds before it is routed to the exchange with the best price
- This is enough time for the market maker / liquidity provider to either change their quote or take out the lower price, change quote and execute the order at the higher quote – locking in a profit
Sponsored access provides thin gateway veneer between client and exchange
- Sponsored access allows brokers & other trading firms to trade directly on an exchange using the access broker’s credentials
- Mostly for liquidity providers / high frequency traders
- Issues are
- Risk management – order goes to the exchange before broker sees it
- If they fat finger an order or the trading model goes errant then the broker is on the hook
- Firms are developing technology to mange this
- Equal access
- Easier to co-lo / obtain sponsored access than ever before
- Better understanding of liquidity in exchanges vs. dark pools
- Exchanges have open access – dark pools don’t
- Brokers & dark pools usually get order flow before exchanges
- Dark pool order flow is more protected than exchange liquidity
- Otherwise execution quality would be worse, and
- Institutional investors would shun dark pools like the plague
Matching
Venue
Market MakerLiquidity Provider
Order
Execution
Broker
Execution
Traditional Access
Order
Order
MatchingVenue
Investor
Broker
Execution
Execution
While all orders need to be represented by a broker they don’t need to go through brokers pipes
Speed to External Matching Venues
Matching
Venue
Order
Market MakerLiquidity Provider
Execution
Execution
Broker
Traditional Access Benefit
Unique Liquidity from Other Customers
Investor
Exchange
Orders
Investor
Broker
Investor
ECNs
First
Second
Investor
Dark
Pool
Sponsored access benefit is exchange execution speed which does not necessarily mean access to best orders
Unique Liquidity Comes from Customers Order Flow
Traditional (Better)Liquidity hits Brokers First
The majority of orders come through brokersfirst. As such they firstmatch in broker crossing networks &
dealers’ dark pools – unless prop shops also co-lo or have high speed access to dealer dark pools
Investor
Exchange
Investor
Broker
Investor
ECNs
Orders
First
Second
Investor
Dark
Pool
Sponsored Access Challenges
Sponsored Access Challenge
While access to co-loed matching engine is quick, significant volume (and better liquidity) comes through brokers (institutional and retail orders).
Co-lo Facility
Investor
Fast
Matching
Venue
Market MakerLiquidity Provider
Broker Data Center
Not as fast
Broker
Matching
Venue
Dark
Pool
Dark pools generally get access to best order flow – which is hard for sponsored access firms to get access to
The amount of data that needs to be processed is astronomical
August 13, 2009
PITCH, ITC 2.1, DirectEdgeX, TotalView-ITCH 4.0,UQDF, UTDF, ArcaBook for Equities, CQS, CTS, OPRA, Canadian Venture Exchange Level 1, Toronto Level 1, NASDAQ Index Dissemination Service, NASDAQ Trade Data Dissemination Service, NYSE OpenBook --- Source: Exegy – marketdatapeaks.com
