Mutual Fund Trading Platform Cuts Out High Frequency Traders
A new trading platform now being developed by a group of former Wall Street electronic trading experts aims to help mutual funds gain a competitive advantage against high-frequency traders.
The start up firm, called IEX Group, is led by Bradley Katsuyamara, former head of electronic trading at Royal Bank of Canada, say media reports. IEX officials declined www.iss-mag's request for comment on the initiative set to go live later this year.
The proposed platform, according to a recent article cited by Wall Street Journal, aims to solve a problem faced by traditional fund managers -- that high speed trading firms can detect their huge block orders and trade ahead of them thereby affecting the stock price. New York and London-based research firm Tabb Group predicts that high frequency traders will account for about 53 percent of US stock volume in 2012.
Katsuyamara would not provide too much detail on how IEX plans to weed out high frequency traders. All he would say is that IEX would "negate" the speed advantage used by high frequency traders and not rely on a fee structure used by exchanges favored by high frequency traders. While at RBC, Katsuyamara helped launch a computerized order management system called Tactical Hybrid Order Router (THOR) which helps fund managers dodge high speed traders.
On its website, RBC says THOR incorporates "proprietary synchronization logic" which allows orders to arrive at exactly the same time in each exchange or trading venue. Doing so removes the time advantage of high frequency traders and prevents them from withdrawing or cancelling orders when it is not to their advantage. THOR also relies on anti-gaming logic which minimizes execution latency and information leakage.
Written by Chris Kentouris, Editor-in-chief (Chris can be contacted through Chris.Kentouris@hotmail.com)