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Smart, price-sensitive technology set to help fund managers reduce trading costs

Investment Technology Group (ITG), a leading agency broker and financial technology firm, today announced the launch of its Active algorithm for the Asia Pacific region. Active adds to the range of advanced ITG algorithms which react to real-time market moves and aim to improve trading performance. It can be used to limit exposure to volatility, help reduce risk and manage trading costs – a priority given current market conditions.

Recent ITG research into the effect of volatility on bid/ask spreads and trading costs across Asia showed that, between 2007 and the end of 2008, expected trading costs increased in developed Asian markets by at least 100% and by over 200% in some countries. This could generate significantly higher costs for fund management firms trading in the region and emphasises the need for buyside traders to use tools specifically designed to cope with volatile markets in order to control costs.

Active was developed using feedback from several leading buyside institutions and has been heavily customised for the different structures and spread profiles of the Asian markets. It has already demonstrated strong performance in other regions: a US study of ITG’s opportunistic algorithms showed a cost saving of up to 60 basis points (bps) for larger orders in the high volatility period studied. A 60bp difference on a $10 million trade equates to a saving of $60,000 for a fund.

Gabriel Butler, Head of Sales & Trading for ITG in Hong Kong, comments: “Active is ideal for traders wanting to take a risk-averse strategy given recent market volatility. It monitors and responds quickly to changes in the order book, reacting in a similar way to how a human trader might in those conditions As trading costs soar across the Asia Pacific region, tools which adapt rapidly as the market moves are more important than ever for managing costs and seeking best execution.”

How it works
Active aims to closely track an arrival price benchmark – i.e. the price at the time the portfolio manager issues the instruction to trade – and will speed up or slow down depending on price, how much volume it has to trade and what the market is doing at a given time (price, depth of order book, spreads and volatility). It combines two trading styles, steadily trading at the current bid or offer price to avoid moving prices, then more aggressively taking liquidity when prices are favourable and to ensure the order gets completed in time. Active also incorporates sophisticated anti-gaming logic to protect orders against adverse price spikes.

A pioneer in algorithmic trading, ITG offers some of the most sophisticated automated strategies globally, all aimed at reducing market impact and improving trading performance. ITG’s Asia Pacific algorithms are currently accessible through ITG’s Triton® execution management system (EMS), and a number of other third-party EMS providers.