Our experience includes:
- Analyzing a hedge fund’s HFT algorithms and responding to a Securities and Exchange Commission (SEC) investigation into market manipulation.
- Reconstructing interactions among market participants’ order activities, including high-frequency trading, in temporary market dislocations.
- Assessing “last look” practices in the FX markets, including the order handling protocols of multiple FX dealers and Electronic Communication Networks (ECNs), and the low-latency trading algorithms of hedge funds.
- Working on trade secret cases involving the alleged theft of HFT algorithms.
- Assessing order flows and order handling algorithms by alternative trading systems and broker-dealers.
Alternative Trading System (ATS)
ATSs are SEC-regulated electronic trading platforms that match orders for buyers and sellers of securities. After exchanges, ATSs account for the majority of equity trading volume in the United States. Cornerstone Research consulted with an ATS to review its trading records in order to evaluate price impact from different types of order flow, the interaction of different types of market participants, and the prevalence of certain HFT strategies such as latency arbitrage.
Cornerstone Research consulted with an equity broker-dealer that offered various routing algorithms to programmatically execute orders across both “lit” platforms (i.e., buyers’ and sellers’ orders are displayed) and “dark” venues (i.e., market participants’ trading interest is not displayed prior to execution).
We analyzed different measures of execution quality for individual “child” orders (i.e., a large block of shares sliced into smaller lots) sent to various platforms to explain why the algorithms chose to direct orders to different platforms at different times. Our analysis also assessed how different algorithms executed “parent” orders as a whole to meet investor demands, for example, maximizing speed of execution vs. minimizing price impact.
FX Last Look
Cornerstone Research has analyzed FX dealers’ and ECNs’ order handling protocols and trade acceptance practices in the context of regulatory investigations and litigation related to “last look.” Last look refers to the practice of giving liquidity providers a final opportunity to examine and reject a client order after the client commits to trade at a quoted price, with the decision sometimes depending on the changes in market price since the quote was streamed.
We analyzed the impact of “last look” on different market participants, how “last look” affected dealers’ overall pricing for different market participants, and the interaction of dealers’ trade acceptances algorithms with latency arbitrage and other aggressive HFT trading strategies.