Doug Rivelli, co-chief executive officer at Pragma Securities, spoke with Traders Magazine recently about several issues affecting equity trading. Among the topics discussed were declining volumes, trends in algorithmic trading and order routing and role of high-frequency traders.
On his biggest concern in the electronic trading marketplace–
The biggest concern in general has been declining volumes in the marketplace. We obviously see that as the biggest threat to all firms, whether they are electronic or non-electronic. That said, specifically in the electronic space our biggest concern is the regulatory environment and where regulators are going to go in terms of regulating dark pools or, say, high-frequency trading.
On the effects high-frequency trading has had on Pragma’s business–
Generally they are affecting our business by requiring us to maintain a very rigorous ongoing research and development process, though we should really clarify what we mean by "high-frequency trader" because there are really several distinct categories of player we could talk about. We’ve put a lot of effort into understanding how market-makers work, for example; how to best interact with their liquidity for our clients; how to benefit from it and what challenges it poses. Another category of HFTs is what we call gamers. They have driven a lot of our research into anti-gaming and execution quality monitoring. As they devise new strategies to sniff out and exploit institutional orders, we need to be able to quickly develop countermeasures for our clients against those strategies.
On recent reports about so-called quote stuffing and how you deal with it–
Quotes flashed into the market and cancelled have been part of the trading landscape for some time. The difference today is the speed and volume of the messaging. These behaviors have a very limited effect on the workings of our algorithmic strategies. We look at many factors when making microtrading decisions, including quote size and duration, spreads, hidden order detection, overall stock liquidity, etc. So, even a large number of quotes with such a short lifespan will not adversely influence our microtrading decisions. Processing all the message data from these quotes is not an issue for us at this point.
On hearing about (or seeing) more blocks trading in dark pools–
I think that volumes over the summer and in general have been relatively light. But what I will say is that clients do express a desire to trade blocks. I’ve heard that at some venues there is some concern about counterparties and how the information that goes out prior to a block trade is controlled, but at the end of the day, our clients are telling us they would like a resurgence in their ability to trade a block.
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