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Equity Market Innovation Leads to Venue Proliferation

Traders Magazine Online News, May 25, 2018

Ivy Schmerken

At last month’s SIFMA Equity Market Structure conference, executives with the following three startups and one established exchange discussed their particular market innovations and how each one fits into the existing equity market structure. 

  • Imperative Execution is on the brink of launching a dark pool to actively solve the problem of minimizing market impact.
  • Nasdaq Stock Market introduced a new order type to help institutions gather more liquidity.
  • Luminex Trading & Analytics is running a buy-side only block execution facility, which has gained traction over the past three years.
  • Long Term Stock Exchange is in registration to become a stock exchange to help companies access the public markets and discourage short-term trading.

But each of these venues is entering a complicated marketplace. With 12 exchanges and more than 30 ATSs, any new entrant is facing hurdles of convincing buy-side and sell-side firms to connect to their venues to send order flow.

“Market impact is a problem that a significant segment of the market cares about across the board,” said Roman Ginis, founder and CEO of Imperative Execution, a startup based in Stamford, Conn., which is preparing to launch a dark pool known as Intelligent Cross in May.  “The market makers care about this, the long-onlys care and the strategy funds care, even though they each have different holding periods,” said Ginis.

“Instead of looking for a silver bullet that solves the problem in the marketplace, we look at it as an optimization problem,” said Ginis, who has a PhD in computer science from the California Institute of Technology and is a former quantitative trader at Cubist Systematic Strategies, a business of Point72 Asset Management. Ginis said he spent many years designing algorithms for different strategies.

The startup is seeded by Steve Cohen’s Point 72 Ventures arm to combat slippage associated with certain high frequency trading strategies, as first reported in The Wall Street Journal in Steven Cohen Targets High-Frequency Trading with ‘Dark Pool’ Venture. However, Ginis said the problem is not specific to HFT and is much broader.

“The problem is we have a market great for small orders. The US market is deep and fast and highly liquid for retail.  We don’t have an efficient market for those who want to trade a few thousand shares,” said Ginis. “This is why all the algorithmic desks exist,” he said. We built this platform to be additive to everyone’s algorithm that want to execute over time,” he said.

Unlike other ATSs, it will not work “parent” orders; instead, it will only see the “child orders” that are executed through algorithms, he said. About 80% of the market is algorithms working orders in the market.

Intelligent Cross will run a midpoint cross whose objective is to get the market impact immediately after the print as close to zero as possible, said Ginis.

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