With an overwhelming selection of algorithms to choose from, traders have the right to be picky. It was that train of thought that gave rise to algorithmic management systems (AMSs), platforms that give traders the tools to build bespoke algorithms, customized to the preferences or unique characteristics of their trading styles.
Entering the space in February 2015, Clearpool Group decided to approach AMSs from a new direction; that is to say, from the cloud.
“You can deploy it very easily and rapidly. The tool set is all Web-based, so no developer needed or programming experience. You just have to understand trading, and the sellside is very proficient at that,” said Joseph Wald, CEO of Clearpool Group.
Unlike some providers in the AMS space, Clearpool only markets its AMS, called Autonomy, to the sellside. In particular, its sweet spot is regional sellside firms, which can then use the platform to configure algorithms for (or in conjunction with) their buyside clients. Clearpool sees Autonomy giving regional firms an opportunity to find a level footing in competing with larger firms’ proprietary electronic or algorithmic trading platforms. The configurability of the platform’s execution protocols may also give regional brokers an extra card up their sleeves, Wald argues.
“Sellside brokers can sit with clients and let them choose the venues they want to go to, those to avoid, and in which order they want to go to them. There are all these variables that you can configure around execution protocol, which under the bulge bracket or white-label scenario can be very rigid,” Wald said. “You typically don’t have the choice of whether or not to go to the bulge bracket dark pool. That’s the primary place they go.”
Inside Guggenheim
One firm that sees the cloud-based customizable algorithm approach leveling the playing field with bulge bracket firms is Guggenheim Securities, the investment banking and capital markets business of the global investment and advisory firm Guggenheim Partners. After testing the platform, Guggenheim decided to roll it out to clients as a private label offering.
“We’ve partnered with Clearpool to provide our clients with an electronic trading solution that is broker-neutral and conflict-free,” said Matthew Johnson, head of equities at Guggenheim Securities. “Autonomy addresses the structural issues that are prevalent within the market today.”
Autonomy’s functionality can be boiled down to a three-stage process. Pre-trade, sellside traders can use the platform to give buyside clients algorithmic design choice. As the bespoke algorithms are deployed in the markets – either directly through integration with buyside OMSs or by sales traders on their clients’ behalf — the clients can view data on how their algorithms are performing at different venues in real time and make adjustments if needed. Finally, after the order is complete, a suite of analytics tools can be used to create a full transaction-cost-analysis report that can then be used to further refine algorithms and start the process over again.
The ability to customize features has resulted in customers using the platform in vastly different ways to achieve the same objectives, according to Wald.
“You can have two algorithms that are both VWAP, and that are very different for each respective client because they have their own expression of what they want to see and how they want the algorithm to work,” he said. “That’s really the power of it.”
New Asset Classes Coming
Autonomy has added 80 clients to the its platform since its launch in February of last year. Clients often test the platform by deploying it on a transactional basis, then convert to a contractual licensed model. The platform is currently equities-only, but Wald says he foresees it eventually expanding to new asset classes and new geographies, based on client demand,
For Wald, who was CEO of EdgeTrade from 1995 to 2008, and later spent four years in an executive role at Knight Capital after the company acquired EdgeTrade, a cloud-based software-as-a-service AMS represents the inevitable progression of the industry.
“Clearpool, as I see it, is version 3, which is a natural extension of where the dialogue should be between the buy- and the sellside,” Wald said. “It’s built on control and transparency, and with a clear decision about whose hands that control and transparency should be in, without any bias, or without any legacy technology protocols that need to be maintained in order to keep the lights on.”
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Renee Caruthers is a contributing editor for Traders.
