Imperative Execution, a startup electronic stock trading venue operator, has found early success using artificial intelligence (AI) to reduce price movements after trades, and now it plans to use the technology to help brokers get larger trades done.
Imperative Execution runs IntelligentCross, a trading platform known as an alternative trading system (ATS) that was launched in September and in the six months since has matched more than 1 billion shares.
To be sure, the company faces tough competition against 31 other ATSs and 13 stock exchanges like Nasdaq Inc and Intercontinental Exchange Inc’s New York Stock Exchange, which together have matched around 6.5 billion shares each day this month.
What sets IntelligentCross apart is that AI is a key feature of the ATS. Founder and Chief Executive Roman Ginis said his firm uses AI to measure the outcomes of trades in real time and then adjusts trading schedules to help brokers get better executions and save their clients money.
“We want to build venues that solve for particular trading outcomes,” Ginis, a former trader at Cubist Systematic Strategies, the computer-driven trading arm of Steven Cohen’s hedge fund Point72, said in an interview.
The ATS currently uses an AI-assisted order type that randomly matches undisplayed orders at the midpoint of the market’s best bid and offer every few milliseconds, rather than when the orders arrive.
It then measures how much specific stock prices move and shifts the intervals between matching times to minimize price movements after the following trades.
The company says this can reduce the costs between the arrival price of an order and the execution price for completing a trade by more than one basis point, which for the entire U.S. stock market would add up to around $10 billion per year.
Jack Miller, head of trading at brokerage Baird, said his firm has had success finding buyers and sellers on IntelligentCross with a very low level of market impact.
“Innovations like this are important to us in driving best execution for our clients,” he said.
In May, IntelligentCross is launching a new order type called the Adverse Selection Protection Engine, or ASPEN. Adverse selection refers to trading against market participants who have more information than you, potentially leaving you on the wrong side of the trade, making larger trade sizes risky.
Aspen’s AI will queue up displayed orders and match them 150 microseconds to 300 microseconds apart, depending on the order size. Not matching them immediately gives brokers time to adjust their order sizes or cancel them, depending on what the market is doing in the interim.
“It is designed to allow you the time to make a decision – not a ton of time, but enough with modern technology - then you don’t need to react to every single flutter of quotes on the Street,” said Ginis.
If a broker posting a quote is not afraid of getting picked off, it will post larger quote sizes for others to trade against, he said.