Although equities commissions have fallen over the past decade and backers of the Members Exchange seek to shrink exchange fees further, reining in explicit trading costs is only the tip of reducing overall trading costs.
Implicit trading cost, such as implementation shortfall and adverse selection, average approximately 90 percent of the total cost of a trade, according to global cost research issued by agency brokerage ITG before its acquisition by Virtu Financial.
Brokers have reached the limit regarding how much they can reduce implicit costs by using algorithms alone, Roman Ginis, CEO of Imperative Execution, told Markets Media.
“The Street has been trading with algos for more than 15 years,” he said. “Everyone’s algo has reached the top of the s-curve regarding how well it can hide the trader’s intent while getting the order done.”
Imperative Execution decided to achieve implicit cost savings through tweaking the available market structure and launched its midpoint-match IntelligentCross alternative trading system in August 2018 as well as its Adverse Selection Protection Engine in May.
Each order book uses machine learning to calculate the appropriate timing between scheduled matching sessions for every security individually.
Using predetermined matching sessions are not a new approach, according to Ginis. Exchanges experimented with the model unsuccessfully because they could never find the proper window length and took a “one size fits all” in their deployments.
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