New ITG algo tees up blocks at US open
Agency broker and trading
technology provider ITG has unveiled a new algo for trading US market opening
auctions, offering buy-side traders the ability to trade in size at a single
The new strategy, called ITG
Dynamic Open, sources liquidity from the opening auctions at US exchanges NYSE
Euronext and Nasdaq OMX and seeks to limit the price impact that can arise from
The strategy uses historical
analysis and dynamic imbalance information from both exchanges to decide
whether or not to participate in the available liquidity during the opening
“We conducted a lot of
quantitative analysis to look at the most efficient way of sourcing liquidity
at the open auction by monitoring imbalances,” Jeff Bacidore, head of
algorithmic trading, ITG, told theTRADEnews.com. “The strategy dynamically
responds to real-time information from the opening auction, which we think is
unique for this type of strategy.”
According to Bacidore, opening
auction trading can account for up to 4% of a typical day’s overall volume on
each exchange, but more on options expiry and triple witching dates – i.e. when contracts for stock index futures, stock index
options and stock options all expire on the same day. According to data from
Thomson Reuters, NYSE Euronext and Nasdaq OMX accounted for 45.5% of US equity
trading in February.
“Tapping into this
volume offers traders the ability to get a large trade done at a single price,
which is advantageous for institutional investors,” Bacidore said. “Many firms
also use the opening price as their benchmark for trading, so this algo offers
a way to achieve this cleanly and efficiently.”
The opening auctions
at Nasdaq OMX and NYSE Euronext have different rules on how orders are handled,
which can pose challenges for buy-side traders looking for pre-market open
liquidity, claimed Bacidore.
NYSE Euronext, for
example, uses the previous night’s closing price as the reference price for
stocks and disseminates imbalance information from 07.30, allowing market
participants to enter, modify or cancel orders until the market open.
By comparison, Nasdaq
OMX uses real-time order information as its reference price and only publishes
imbalance information at 09.28 and only allows members to offset imbalances.
Bacidore added that similar
dynamic methodology would be applied to ITG’s closing auction algorithm, which
is in the process of being upgraded.
The Dynamic Open algorithm and
ITG’s other strategies are available via its Triton execution management system
and via a FIX connection from third-party trading systems.
The firm offers algos across
35 markets in the Americas, Asia-Pacific and EMEA regions.