Electronic and Algorithmic Trading Technology: The Complete Guide (Complete Technology Guides for Financial Services)

Electronic and algorithmic trading has become part of a mainstream response to buy-side traders{u2019} need to move large blocks of shares with minimum market impact in today{u2019}s complex institutional trading environment. This book illustrates an overview of key providers in the marketplace. With electronic trading platforms becoming increasingly sophisticated, more cost effective measures handling larger order flow is becoming a reality. The higher reliance on electronic trading has had profound implications for vendors and users of information and trading products. Broker dealers providing solutions through their products are facing changes in their business models such as: relationships with sellside customers, relationships with buyside customers, the importance of broker neutrality, the role of direct market access, and the relationship with prime brokers. Electronic and Algorithmic Trading Technology: The Complete Guide is the ultimate guide to managers, institutional investors, broker dealers, and software vendors to better understand innovative technologies that can cut transaction costs, eliminate human error, boost trading efficiency and supplement productivity. As economic and regulatory pressures are driving financial institutions to seek efficiency gains by improving the quality of software systems, firms are devoting increasing amounts of financial and human capital to maintaining their competitive edge. This book is written to aid the management and development of IT systems for financial institutions. Although the book focuses on the securities industry, its solution framework can be applied to satisfy complex automation requirements within very different sectors of financial services {u2013} from payments and cash management, to insurance and securities. Electronic and Algorithmic Trading: The Complete Guide is geared toward all levels of technology, investment management and the financial service professionals responsible for developing and implementing cutting-edge technology. It outlines a complete framework for successfully building a software system that provides the functionalities required by the business model. It is revolutionary as the first guide to cover everything from the technologies to how to evaluate tools to best practices for IT management. *First book to address the hot topic of how systems can be designed to maximize the benefits of program and algorithmic trading *Outlines a complete framework for developing a software system that meets the needs of the firm's business model * Provides a robust system for making the build vs. buy decision based on business requirements Front Cover......Page 1 Electronic and Algorithmic Trading Technology......Page 4 Copyright Page......Page 5 Dedication Page......Page 6 Contents......Page 8 About the Author......Page 14 Series Preface......Page 16 Introduction......Page 20 1.1 Overview......Page 22 1.2 The Emergence of Electronic Trading Networks......Page 23 1.3 The Participants......Page 25 1.4 The Impact of Decimalization......Page 27 1.5 The Different Faces of Electronic Trading......Page 29 1.6 Program Trading and the Stock Market Crash of 1987......Page 31 1.7 Conclusion......Page 34 2.1 Introduction......Page 36 2.2 Internal Controls......Page 37 2.3 Trade Cycle......Page 38 2.4 Straight-Through Processing and Trade Automation......Page 40 2.5 Data Management......Page 41 2.6 Order Management Systems......Page 43 2.7 Order Routing......Page 46 2.8 Liquidity Shift......Page 47 2.9 Conclusion......Page 49 3.1 Introduction......Page 50 3.2 A Sample Program Trade......Page 52 3.3 The Downside of Program Trading......Page 54 3.4 Market Growth and IT Spending......Page 57 3.5 Conclusion......Page 59 4.1 Introduction......Page 60 4.2 Structure of Exchanges......Page 61 4.3 Rule 390......Page 64 4.5 Arguments Against Exchanges......Page 65 4.6 The Exchanges in the News......Page 67 4.7 Conclusion......Page 70 5.1 Introduction......Page 72 5.2 Algorithmic Penetration......Page 73 5.3 Implementation Shortfall Measurement......Page 75 5.4 Volume-Weighted Average Price......Page 77 5.5 VWAP Definitions......Page 79 5.6 Time-Weighted Average Price......Page 81 5.7 Conclusion......Page 83 6.1 Introduction......Page 84 6.3 Algorithmic Feasibility......Page 85 6.4 Algorithmic Trading Checklist......Page 87 6.5 High Opportunity Costs......Page 88 6.6 Newsflow Algorithms......Page 89 6.7 Black Box Trading for Fixed-Income Instruments......Page 90 6.8 Conclusion......Page 91 7.2 Direct Market Access......Page 92 7.3 Electronic Communication Networks......Page 96 7.4 Shifting Trends......Page 100 7.5 Conclusion......Page 101 8.1 Introduction......Page 104 8.2 Real-Time Data......Page 105 8.3 Strategy Enablers......Page 106 8.4 Order Routing......Page 108 8.5 Impact on Operations and Technology......Page 109 8.6 Conclusion......Page 110 9.1 Introduction......Page 112 9.2 Components of Trading Costs......Page 113 9.3 Price Impacts with Liquidity......Page 114 9.4 Cost of Waiting......Page 118 9.5 Explicit Costs-Commissions, Fees, and Taxes......Page 119 9.6 Conclusion......Page 121 10.1 Introduction......Page 124 10.2 Post-Trade TCR......Page 126 10.3 Pre-Trade TCR......Page 127 10.4 The Future of Transaction Cost Research......Page 129 10.5 Conclusion......Page 130 11.1 Introduction......Page 132 11.2 Development of Electronic Trading......Page 134 11.3 Electronic Trading Platforms......Page 137 11.4 Types of Systems......Page 140 11.5 TRACE-Reform in Transparency......Page 141 11.6 Foreign Exchange Markets......Page 143 11.7 Conclusion......Page 144 12.1 Introduction......Page 146 12.2 Regulatory Challenges......Page 147 12.3 The National Market System......Page 148 12.4 The Impact of Regulatory NMS......Page 152 12.5 Markets in Financial Instruments Directive in Europe......Page 154 12.6 Regulatory and Exchange Reporting......Page 156 12.7 Example of an Exchange Data Processing System......Page 159 12.8 Conclusion......Page 160 13.1 Introduction......Page 162 13.2 Vendor as a Service Provider......Page 164 13.3 Striving to Stand Out......Page 168 13.5 Hedge Fund Systems-Outsource or In-House?......Page 170 13.6 Conclusion......Page 173 14.1 Introduction......Page 174 14.2 Prime Broker Services......Page 175 14.3 The Structure of Hedge Funds......Page 178 14.4 The Impact of Increased Trading Automation......Page 179 14.5 Different Markets and Asset Classes......Page 180 14.6 The Prime Brokerage Market......Page 181 14.7 Conclusion......Page 182 15.1 Introduction......Page 184 15.2 Profiling Leading Vendors......Page 187 15.3 Order Management Systems......Page 196 A.1 Overview......Page 202 A.2 Project Phases......Page 203 A.2 User Acceptance Testing......Page 204 A.5 Supporting Financial Products......Page 205 Glossary of Terms......Page 208 Index......Page 220 Electronic and algorithmic trading has become part of a mainstream response to buy-side traders’ need to move large blocks of shares with minimum market impact in today’s complex institutional trading environment. This book illustrates an overview of key providers in the marketplace. With electronic trading platforms becoming increasingly sophisticated, more cost effective measures handling larger order flow is becoming a reality. The higher reliance on electronic trading has had profound implications for vendors and users of information and trading products. Broker dealers providing solutions through their products are facing changes in their business models such as: relationships with sellside customers, relationships with buyside customers, the importance of broker neutrality, the role of direct market access, and the relationship with prime brokers.
Electronic and Algorithmic Trading Technology: The Complete Guide is the ultimate guide to managers, institutional investors, broker dealers, and software vendors to better understand innovative technologies that can cut transaction costs, eliminate human error, boost trading efficiency and supplement productivity. As economic and regulatory pressures are driving financial institutions to seek efficiency gains by improving the quality of software systems, firms are devoting increasing amounts of financial and human capital to maintaining their competitive edge. This book is written to aid the management and development of IT systems for financial institutions. Although the book focuses on the securities industry, its solution framework can be applied to satisfy complex automation requirements within very different sectors of financial services – from payments and cash management, to insurance and securities.
Electronic and Algorithmic Trading: The Complete Guide is geared toward all levels of technology, investment management and the financial service professionals responsible for developing and implementing cutting-edge technology. It outlines a complete framework for successfully building a software system that provides the functionalities required by the business model. It is revolutionary as the first guide to cover everything from the technologies to how to evaluate tools to best practices for IT management.

*First book to address the hot topic of how systems can be designed to maximize the benefits of program and algorithmic trading
*Outlines a complete framework for developing a software system that meets the needs of the firm's business model
* Provides a robust system for making the build vs. buy decision based on business requirements Overview of program and algorithmic trading Automating trade and order flow The growth of program and algorithmic trading Alternative execution venues Algorithmic strategies Algorithmic feasibility and limitations Electronic trading networks Effective data management Minimizing execution costs Transaction cost research (TCR) Program and algorithmic trading for different asset classes Regulation NMS and other regulatory challenges Build vs. buy Trading technology and prime brokerage Profiling the leading vendors. "Electronic and Algorithmic Trading Technology is the ultimate guide for trading managers, brokers, and back-office processing directors to understand the new technologies that can cut transaction costs, eliminate human error, boost trading efficiency, and supplement productivity - in short, save and make money for the firm."--BOOK JACKET