We shape market thinking.  Our experts monitor the latest industry developments, engage current debates, and offer ongoing analysis so we're prepared to offer up-to-the-minute guidance.  Based on our well regarded understanding of worldwide financial markets, we are able to take an active role in the conversations that inform market regulations and are positioned to advocate for our clients' interests.

Multi-Asset Best Execution and MiFID II


While Best Execution and Transaction Cost Analysis (TCA) are well-established in equity trading, other asset classes have been slower to adopt such techniques due to limitations in market data and market structure characteristics. In Over-thecounter (OTC) markets there has typically been no requirement for central reporting, making it difficult to demonstrate best execution in the same way as for equities. This is beginning to change due to pressure from regulators and end investors who require higher standards of information. Market structure changes, with more electronic platforms taking increasing shares of trading, are also enabling more precise analysis. Over the last three or four years, Foreign Exchange (FX) TCA has become increasingly mainstream for asset managers, while one recent survey shows that in the past year, Fixed Income TCA has become the fastest growing category of analysis1. These trends are expected to continue, not least in the light of MiFID II regulations.

A Better Way to Trade Small Caps: The Power of Volume Volatility in Algorithm Design


The goal of this research was to study methods of altering the standard approach to VWAP such that it respects stock-specific volume volatility. The early returns are promising, and we think this concept can be applied to other algorithms where inappropriately tight constraints create excess cost. In this paper, we review the state of the art for volume forecasting and how these efforts are rewarded. We show the results of a random trial of orders that use a static tolerance around the target schedule vs. orders that use a tolerance that is set by the volume volatility of the stock. The results show less aggressive trading. We also argue that traders shouldn’t choose algorithms based on stock characteristics. Instead, algorithm choice should focus on the tradeoff between cost and timing risk.

Adjusting for Size

As the next advance in FX TCA reporting, our clients in the investment community have requested size-adjusted spread (SAS) benchmarks that account for risk and liquidity on a pre-trade and a post-trade basis. However, one of the more frustrating aspects of over-the-counter trading is the lack of transparency around these spreads. An accurate size-adjusted spread based on aggregated electronic foreign exchange quotes would replace the old method of supplying expected spreads: manually-filled matrices for each trading region with spreads for given currency pairs and sizes. Buy-side traders depended on this information to both hold banks accountable for their agreed spreads as well as manage their own expectations for costs. Now that buy-side firms are more responsible for currency risk, they need a system that will digitally re-create those matrices and give them a benchmark that will show that they add value to the investment process.

Volatility Series: Trading Halts


  • Single-stock circuit breakers occurred almost 1300 times on 8/24/15
  • ETFs represent 79% of halts
  • Halts are imprecise but a net benefit

Equity market volatility has come roaring back over the past month. As the VIX flirts with levels unseen since the financial crisis and 2% index moves represent a regular occurrence, the typically sleepy months of August and September have been anything but for equity traders. The past month has put global market structure through an unexpected stress test, and we have been reviewing the data for observations. In this note we will focus on trading halts (single-stock trading halts). In the coming weeks, we will look at additional important issues, including some of the effects of volatility on volume curves, spreads, and liquidity.

Canada’s New Market Model Conundrum

On September 8, 2015 the TMX Group published the much anticipated fee schedule for the revamped Alpha Exchange (subject to regulatory approval). Coupled with the recently published minimum size thresholds for “Post Only” orders, we now have near perfect information around how the market will operate and can opine intelligently on the expected impact the new model is likely to have on equity trading in Canada.

For Hedge Fund CFOs, Unbundling is Not Unburdening

Chief Financial Officers at hedge funds, both established and emerging, have a lot on their minds these days: intense competition for assets, increased regulatory and compliance burdens and changes in market structure are among the many things which keep these financial professionals up at night.

Five Steps to Transparency

Commission Management is increasingly important in Asia, not because of local regulation but because it makes good business sense

Although the use of dealing commissions to buy research and other services is under controversial scrutiny in Europe, most Asia Pacific markets still operate in a fully bundled way. This takes the form of brokerage rates that combine research with execution, and regulation, if it exists, that still refers to soft dollars – a term that has fallen out of favour in the US and Europe. However, investment is now a global rather than a local exercise, therefore demonstrating transparency and accountability in managing clients’ money is top priority when attracting investors and raising funds. Whatever the outcome with European regulatory review, Asian hedge funds and asset managers can implement some simple processes which demonstrate good practice in the use of client’s commissions. This will stand them in good stead for answering investor enquiries on the topic, or addressing regulatory review if the focus widens.

A Singular Approach to Multi-Asset Management

Technology is constantly evolving to meet the demands of increasingly sophisticated asset managers and growing regulatory scrutiny. When it comes to multi-asset investing and the trading tools that go along with it, hedge funds are at the front of this curve and are looking increasingly ‘institutional’ in their use of technology to deal with the wide variety of asset classes they invest in. This is particularly important in today’s markets where the Asian hedge fund industry is growing at a rapid rate, and strategy diversification is an important part of generating alpha and attracting investment.*

ITG Client Quick Call: The Power Of Volume Volatility in Trading Strategies

Many market participants struggle to find the right tactics to navigate less actively traded stocks. Often these stocks have inconsistent intraday volume patterns. Lower ADV stocks suffer within the strict framework of typical schedule-based algorithmic strategies. Considering volume volatility can improve outcomes.

This targeted call will provide a high level overview of our research on execution tactics that bridge the gap between scheduled algorithmic strategies and the flexibility required to trade less consistently traded stocks.

NYSE Outage

The New York Stock Exchange went missing-in-action on Wednesday, July 8th for nearly four hours, and the investing world shrugged. Closed for repairs, one could say. ICE (NYSE’s owner/operator) identified the root cause of the issue as an overnight software release. After experiencing intermittent FIX issues all morning, NYSE suspended trading from 11:32 AM through 3:10 PM ET, a period of almost four hours. Most would intuitively expect it to have been a serious concern, but it turned out to be just the opposite. The event caused little pause to trading as equity volumes simply migrated from the NYSE to other exchanges. The suspension was the longest technology-related outage in the history of the Big Board, yet it was a non-event for most equity traders.

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