Examining the need for internal crossing as a liquidity source, Quod Financial will unveil Quod Financial Adaptive Cross, in a live demonstration at the 6th Annual FPL Americas Conference on Electronic Trading in New York on Tuesday, Nov. 4 and Wednesday, Nov. 5.
Adaptive Cross offers simultaneous access to internal and external liquidity, reducing the barriers to entry for internally crossing order flow to both tier 1 and tier II institutions, according to the company's release.
Also, Quod Financial released a white paper titled "The Evolution of Securities Execution" outlining the parameters for the next-generation of trading execution technology and detailing the importance of internal crossing as a source of liquidity. The white paper is available on the company's site under knowledge centre.
For instance, the paper provides a description of internal crossing mechanisms by asset class including cash equities, listed derivatives -- options and futures -- fixed income cash bonds and foreign exchange. It also ranks the likelihood of a buy-side firm finding a match within an internal crossing vs. an external crossing mechanism, and shows the pros and cons, in terms of quality of price, speed, certainty of settlement and degree of market disruption. For instance, the likelihood of an investor finding a match in a customer-cross via an internal mechanism is very low, and finding a match in a 'house cross' within a mega investment bank, is low, according to Quod. However, on the plus-side in both cases, the price would be very good, the speed, very good, the certainty of settlement would be good and the market disruption would be low.
In an external liquidity source, such as a dark pool, Quod says the likelihood of execution would be low, the price very good, and the market disruption low. However, with an ECN/ MTF, the likelihood of execution would be medium, the price good, but the market disruption high, while with a main market exchange, the likelihood of execution would be high, the price medium/low and the chance of market disruption, high.
In a statement, Ali Pichval, CEO of Quod Financial, commented, "The growing complexity of trading requirements demands, a new generation of technology that can hunt down both external and internal liquidity at high volumes and speed, while controlling costs and information leakage."
"Our paper illuminates how market circumstances have created an imperative to manage algorithmic trading, smart order routing and internal matching in a fully integrated manner. Adaptive Cross coordinates those functions into a perfectly articulated matching to enhance execution and profits," stated Pichval in the release.
Adaptive Cross was developed as part of Quod Financial's suite of trading solutions that adapt in real time to changing conditions in liquidity venues. Adaptive Cross may be used with either Adaptive Smart Order Router (ASOR) or other SOR systems.
According to Dhiren Rawal, US managing director of Quod Financial, who is speaking at the FPL conference, "In this dynamic era of market restructuring, internal matching is not only a matter of profits or customer service. With evolving regulatory mandates regarding transparency affecting new MTFs as well as exchanges, the full coordination of internal with external liquidity-seeking may become key to discrete block trading for buy side, as well as sell side institutions," stated Rawal in the release.