Our New Algo Suite: Negative All-In Pricing After Trading Two Trillion Dollars

We’re excited to be launching a new suite of US equity cash algorithms for the sell-side — a high performance suite of algorithms called the Smart Suite.

There are three differentiating characteristics

  • They are designed to deliver excellent performance
  • Involve no toxic treatment; and
  • They are presented with negative all-in pricing

It is in beta with a handful of clients, and enjoying a promising start.

Negative All-In Pricing
In our pricing schedule we contractually guarantee a mil rate, per type of algorithm used with exceptions for dark pool aggregators and participation in auctions.

Excellent price performance based on over two trillion dollars traded.
If performance is like our past five years worth of TCA data, it is going to be very good — we invest in doing good quant work and good technology footwork to indeed get good price performance. Since 2010, we have traded over 59 billion shares and over 2.05 trillion dollars in the aggregate. We understand the sources of slippage well and, for example, anticipate average slippage of our VWAP vehicle from VWAP benchmark to be in the one basis point range, in S&P 500 names — a level of slippage considered excellent (see important disclaimers regarding forward-looking statements, below).

Guaranteed Rebates Provide Trading Cost Insurance

How do we guarantee rebates? When algorithms perform well price-wise, they generate rebates as an emergent and positive side-effect of good algorithmic work — good algorithms are careful about reaching across the spread and taking liquidity, and mostly fill by intelligent liquidity contribution. And market centers’ fee structures reward liquidity addition. So liquidity rebates and good price performance are positively correlated, and are not tradeoffs.

In practice, there is much variation in net rebates received or fees paid per order, notably and for example, when the market is trending away. We are able to offer contractual rebate guarantees as we have enough scale across all customers, and enough orders trading across our vehicles, that the averages work out.

The sell-side frequently has to pick up the freight costs of trading — a complex guessing game. Even if the averages are positive, with some customers, there can be net-negative weeks or months! We take all that complexity away and replace it with a simple and quite generous rebate schedule. So with every order, every customer using the Standard Suite knows their use of DV algos actually comes with a guaranteed rebate.

No Toxic Treatment — Contractually Guaranteed
In one of the more comical corners of the US cash equities ecosystems, market making desks and other buy-side high frequency desks pay customers to receive order flow. Roughly speaking market makers make PnL off of end-customer’s order flow by giving worse average fill prices. Part of that PnL gets kicked back to desk that send the order flow to the market makers.

The Smart Suite is a material departure from that evidently questionable business model. First, we contractually guarantee “No toxic treatment”: So no market makers will ever see the flow, no prop desks, and not even dark pools run by firms that have prop or hedge fund affiliates. More important, our quants and Ph.D.s are working for you and lowering transaction costs, not trading against your flow!

Like what you hear? Contact our Sales Team ( sales@deepvalue.net ) to find out more.

This information is not intended to be used for trading or investment purposes, is for the intended recipients only, may contain information proprietary to Deep Value and which may not be reproduced. The information here is not “research” as that term is defined by applicable regulations. Past performance is not a guide to future performance. The firm accepts no liability for any loss that may arise from any use of the foregoing. The Smart Suite is offered by Deep Value Execution Services, under an arrangement between Deep Value, Inc. and Benjamin and Jerold Brokerage, LLC, member FINRA, NYSE, ARCA and SIPC. See the full disclaimer for important additional terms.