As buy-side firms take more control over executing orders, there is an increasing interest in algorithmic-trading strategies combined with direct-access trading platforms.
"It's a very important movement in the marketplace," says Robert Moitoso, senior vice president, global transaction services at Thomson Financial. "The number of traditional block trades is dwindling, the number of executions is increasing, and they're chopping up orders more," he says.
The trading models analyze a security's trading pattern and the trader's aggressiveness and translate the data into a series of orders that are fed in the market as surreptitiously as possible.
At this year's Securities Industry Association Technology Management Show and Conference, the trend was evident as several major players in the program- and algorithmic-trading space, including Portware; Newport; and REDIPlus from Spear, Leeds & Kellogg, displayed their wares. The platforms have been dubbed execution-management systems because they help traders interact with the market more than traditional order-management systems.
Underlying the interest in algorithmic trading is the emphasis on maintaining, controlling or reducing trading costs, says Sang Lee, manager of the securities and investments practice at Celent Communications. "While there is a focus on saving in terms of trade execution, [hedge funds and buy-side] firms are trying to make money on these trades," Lee says. "The main reason is, you're taking a certain strategy that you've created and you're implementing it to make money."