One of the leading providers of broker and trading related services, ConvergEx, has announced a dynamic order routing strategy which allows its clients to transfer a determined percentage of any order to be sent for execution on the IEX Alternative Trading System.
Alternative Trading Systems (ATS) also known as “dark pools” has been at the core of the high-frequency trading (HFT) scandal which erupted earlier this year after the publication of Michael Lewis’ newest book ‘Flash Boys’.
IEX’s founder, Brad Katsuyama, is one of the lead characters in the book, aiming to defend the interests of investors who have been front run by HFT companies.
After the IEX Group raised $75 million to become an exchange and drop its ‘dark pool’ qualification, this latest collaboration adds an additional effort to bring increased efficiency to a stock market with a damaged reputation.
The Darkest Algorithm
After sending a specified amount to the IEX, the remainder of the order is going to ConvergEx’s Darkest algorithm, which is scouting for liquidity among more than 20 other ‘dark pools’. The analysis conducted by ConvergEx showed that executions at IEX indicated that client orders were being successfully protected from latency arbitrage.
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The Darkest algorithm was created in collaboration with the IEX. The combination allows clients to split their orders and route either 25% or 50% of a trade to the IEX ATS, and the rest of the order to ConvergEx’s Darkest algorithm.
If either part of the order is filled, the remainder is dynamically reallocated according to the pre-determined percentage. The move by ConvergEx is yet another testament to the optimized market structure which the IEX is offering to clients who route their order flow though the company’s ATS.
ConvergEx Group’s Head of US electronic Execution, Oliver Sung, stated, ”ConvergEx began routing orders to IEX in November of last year, and we decided to expand our relationship after our analysis confirmed that our clients were receiving excellent execution quality in their venue.”
“With the addition of Darkest + IEX to our suite of trading strategies, we are able to provide clients with even greater control over their orders,” he added.
IEX’s President and Chief Executive Officer, Brad Katsuyama, stated in the company announcement, “IEX’s market is designed to eliminate structural inefficiencies and improve trading performance. ConvergEx’s data offers third-party evidence that we’ve succeeded in effectively eliminating latency arbitrage.”
“The Darkest + IEX strategy provides an exciting new way to access our marketplace, and shows that ConvergEx shares our commitment to helping investors take charge of where their orders are executed,” he concluded.
Electronic clients of ConvergEx can access the IEX ATS through the Darkest and AbraxasSM algorithms, while high-touch clients can contact the company’s sales trading desk to gain access to the IEX market.