March 19, 2012

Knight Capital Group unveiled an enhanced version of its Sumo algorithm for institutions looking to execute blocks through focused size discovery.

Knight claims that Sumo "was one of the first algorithms designed to use real-time and historical liquidity measures to complete an order as quickly as possible."

The firm spruced up its Sumo algorithm to account for the increasing use of shorter-term trading strategies and their impact on liquidity. According to a press statement, Sumo targets liquidity provided by effective counter-parties to institutional traders, including passive or neutral electronic traders.

"Certain high-frequency strategies have adapted to glean more and more information from the slice and spray approach of many of today's buy-side algorithms, making these traditional 'cost-biased' smart order routers less effective over time. Sumo counters with a 'size-biased' routing strategy to find larger blocks of liquidity at fewer venues, moving orders through the marketplace in such a way as to reduce information leakage," says Joseph Wald, managing director at Knight.

Wald continues: "Through our algorithms, clients reap the benefits of Knight's internal liquidity, massive infrastructure and market structure expertise."

Sumo allows clients to interact with market participants using shorter-term strategies in a benign way through size discovery and trading signals to determine the appropriate speed, interaction rate and order size for effective execution, while camouflaging their trading activity.