Citi has introduced significant enhancements to Dagger, its leading liquidity-seeking algorithm for equity markets. Dagger now provides clients access to greater liquidity within Citi’s dark pool, Citi Match, and across a range of lit and dark venues, as well as new technology to further protect client orders from gaming and undue market impact.
A decline in institutional volumes coupled with an increase in short-term, high-frequency market-making has made European equity markets increasingly difficult to trade. As a consequence, the gap has expanded between apparent and actual tradeable volume. Such dynamics particularly affect liquidity-seeking (rather than schedule-based) algorithms, which can be tricked into trading on short-term price spikes.
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“The new Dagger algorithm combines state-of-the-art access to lit and dark liquidity with a far greater control over the price at which they execute. Clients have made it clear: they want more liquidity, control and protection than many broker algorithms currently provide. The enhanced Dagger algorithm delivers this,” said Tim Wildenberg, Head of EMEA Electronic Trading at Citi.
The liquidity-seeking algorithm develops a detailed picture of the real-time liquidity and volatility characteristics of a stock to decide where to place orders in the book, what capacity the market has to provide liquidity at a specific price point and whether that price represents fair value.
“Many liquidity-seeking algorithms in the market fail to take proper account of the impact their own trading is having on a stock price and the true fair value of the asset at any point in time. As a result, clients tell us time and time again of situations where a broker’s algorithm is effectively gamed into trading in size at the wrong price. This is increasingly a problem in the current liquidity environment and Dagger has been specifically designed to help avoid this,” said Takis Christias, Citi’s Head of EMEA Algorithmic Products.