Dark pools trading has been heavily scrutinized by the latest book by Michael Lewis, ‘Flash Boys’ earlier this year. Described as places where no investor can meet his orders filled without the interference of high-frequency trading (HFT), the book unleashed a wave of criticism, especially by exchanges which tolerate high-frequency traders and companies operating the so called ‘dark pools’.
The cat and mouse game, which investors have to play with high-frequency traders is known to industry insiders for quite a while. With enough market players willing to use Alternative Trading Systems (ATS), scarily dubbed dark pools, once their books enter the market place, they are subjected to a probing tactic by orders from HFT firms.
While investors are increasingly concerned about predatory trading, slow execution, and a lack of transparency, many institutional traders feel they are at a disadvantage when trading in dark pools.
One of the leading execution brokerages, the Investment Technology Group (ITG:NYSE) is actually running one of those scarily sounding dark pools. However the company is openly proclaiming to protect the interests of all clients trading through the company’s dark pool, POSIT.
Today the firm announced a new addition to its set of transparency tools which are warranting the best interests of its clients using the firm’s dark pool. The POSIT Marketplace 3.0 algorithm is the third generation of the Investment Technology Group’s (NYSE:ITG) effort to increase fill rates for not only the firm’s ATS, but also other non-displayed trading venues, while filtering out potentially toxic liquidity.
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The algorithm is designed to find natural liquidity in any dark pool and it aims to insulate institutional order blocks from giving out information. At the same time the ATS is decomposed to constituencies and specific order flows are avoided to prevent size order probing.
Commenting on the launch, ITG’s Algorithmic Trading division Managing Director Ben Polidore, said, “POSIT Marketplace 3.0 represents a major advancement in dark trading capability. POSIT MP 3.0 employs machine learning techniques and ITG’s proprietary liquidity filter to source high-quality flow from nearly any dark pool, all while minimizing information leakage.”
“POSIT Marketplace 3.0 moves beyond dark aggregation to dark optimization. It is built on the fundamental insight that the methods used for sourcing liquidity are every bit as important as which dark venues are accessed,” ITG’s Head of Algorithmic Trading, Jeff Bacidore,
Investment Technology Group’s (NYSE:ITG) new algortihtm is accessible through the firm’s Triton execution management system and via a FIX API connection to ITG from third-party trading systems.
Earlier this year, the Investment Technology Group (ITG:NYSE), announced the launch of two transparency tools for the FX market participants. ITG’s FX Trading Cost Index aims to assist traders to estimate their trading costs, while the ITG FX Volatility Index (ITG FXVX) represents a daily benchmark forecasting FX volatility for the coming trading day.