|MARCH 19, 2012|
|Knight Launches Enhanced Sumo Algorithm|
Sumo was one of the first algorithms designed to use real-time and historical liquidity measures to complete an order as quickly as possible. Knight redeveloped the Sumo algorithm to account for the increasing use of shorter-term trading strategies and their impact on liquidity. Sumo aims to target liquidity provided by effective counter-parties to institutional traders, including passive or neutral electronic traders.
"Certain high-frequency strategies have adapted to glean more and more information from the slice and spray approach of many of today's buy-side algorithms, making these traditional 'cost-biased' smart order routers less effective over time. Sumo counters with a 'size-biased' routing strategy to find larger blocks of liquidity at fewer venues, moving orders through the marketplace in such a way as to reduce information leakage," said
Sumo allows clients to interact with market participants using shorter-term strategies in a benign way through size discovery and trading signals to determine the appropriate speed, interaction rate and order size for effective execution, while camouflaging their trading activity.
Size discovery. Anticipatory strategies have developed to the point that they can glean the intent of traditional smart order routers, which use "price discovery" to slice and spread orders across multiple venues and over time. Sumo was enhanced based on "size discovery," seeking the largest order at each venue to complete as much of the trade as possible while minimizing information leakage. Executions occur both on and off-exchange (lit and dark markets).
Signal-based trading. Sumo collects data on size and quote from the lit markets and, through Order Awareness technology, gains feedback from recently completed executions within Knight Direct to determine the best liquidity venue or venues, appropriate order size and timing. At the same time, the Sumo algorithm emanates liquidity-seeking signals that don't look like typical existing participation strategies, helping to minimize information leakage.
Institutions can access Sumo and Knight's other award-winning algorithms through the Knight Direct broker-neutral electronic trading platform and through leading OMS and trading system providers. Knight received a 2012 Wall Street Letter Institutional Trading Award for Best Agency Broker Algorithm, a 2011 The Trade Algorithmic Trading Award for Ones to Watch US, and a 2010 Buy-Side Technology Award for Best Broker-Supplied Tool/Technology for the FAN algorithm and Best Buy-Side Newcomer (Vendor or Product) for the Oasis algorithm.
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