May 21, 2007

Citi Electronic Execution is launching a new trading algorithm combining an implementation shortfall with consolidated access to nondisplayed liquidity and crossing engines. The IS Shadow strategy executes "child" orders according to an optimized implementation shortfall trading schedule while simultaneously sending unexecuted "parent" orders to nondisplayed liquidity pools, according to the company.

"The buzz is all about crossing networks and dark pools," says Tim Reilly, managing director and head of North America electronic execution sales at Citi. "But there's a frustration that you're not certain that orders will get done. [IS Shadow] offers more certainty that you'll get the order done and efficiently hit the various major crossing engines as well."

When the algorithm finds liquidity in a dark pool or crossing network it will automatically direct portions of the unexecuted parent order there, according to Reilly. As the orders get filled, the algorithm will also reoptimize the implementation shortfall trading schedule to reflect the decreasing size of the parent order, he explains.

"I can trade faster in the actual market if I don't have as big of an order and it won't make as big of an impact when I'm trading," Reilly says. "It's a natural evolution of these rules-based models that are now able to learn from market behavior and dynamically adjust how they actually trade." Reilly adds that in the post-Reg NMS world, consolidated access to numerous liquidity venues will be key. "The buy and the sell side will embrace the utilization of these types of tools," he contends.

User inputs available via IS Shadow include start time, end time, limit price, max percent of volume and completion price.