Complete Analysis Requires an Understanding of Child Order Intentions
By Stephen Cavoli, Execution Services, Virtu FinancialBy supporting the RTI, we hope to raise the standard of transparency in the industry by providing normalized data for clients to analyze, as we believe that transparency helps market participants make better, more informed trading decisions. Initiatives like the RTI are very much in line with our Enhanced TCA and Transparency Report, where we were the first to provide granular insight into the decision making process of Virtu’s algorithms and how the clients’ execution objectives and market conditions map to an algo’s order routing decisions. Competition creates choices and people naturally want a way to ensure they are making the optimal decisions for their trading objectives. To perform meaningful analysis, investors need more transparency and data regarding how their orders are handled. Through initiatives like the RTI, the buy side is really demanding more from their brokers – Broker Algo suites and TCA should be focused on achieving good parent level execution quality while offering extreme transparency at the child order level. Intentions of child routes are critical – and evaluating those decisions with respect to the parent should be central to everything a broker does. When a broker has control at the order level, they can more precisely align order routing to their client’s instruction. For instance – unique urgencies of the same algorithm may route differently; perhaps they block fewer segments within ATSs at higher levels of urgency, or reduce the level of sensitivity to book skews, even though spreads have widened. It isn’t easy, and it requires an entire trading system whose purpose is to do exactly that.