Vhayu Velocity Algorithmic Trading Case Study

Solution Benefits
In addition to technical benefits the investment bank was able to realize, Vhayu Velocity opened up a number of tangible benefits for the firms clients and internal decision makers. These include:

Enhancing Algorithmic Trading With Faster Trade Opportunity Detection

This case study explores the experiences of a Tier-1 investment bank that was losing institutional order flow to other bulge bracket brokers due to lack of a fast and customizable platform for building algorithms for its clients to execute orders electronically. Its existing system was built in-house and only allowed a limited set of predefined algorithmic strategies. It also lacked an API that enabled asynchronous communication or integration with order management systems (OMS). After struggling to develop a better solution and overcome the limitations of its in-house system, the investment bank turned to the Vhayu Velocity platform. In selecting a new solution the clients key criteria were:

Ability to implement new trading strategies for global clients on a customized basis Improved time between identification of trade opportunity and order transmission Improved measurement of algorithm effectiveness A strong marketing tool for the sales traders to showcase to institutional clients

Event-driven publish/subscribe capabilities Use of standard development languages (C++/TCL) Integration capabilities with third party C++ libraries (FlexTrade, Fiorano JMS libraries)

Solution Overview
For More Information
Vhayu Technologies Corp. 100 Cooper Ct. Los Gatos, CA 95032 Phone: +1 877.504.0006 Fax: +1 408.354.9820 New York 21 East 40th Street 7th Floor New York, NY 10016 Phone: +1 212.242.6355 London 68 Lombard Street London EC3V 9LJ Phone: +44 20 7868 1765 Fax: +44 20 7868 1800 www.vhayu.com

As deployed by the broker, the Vhayu Velocity platform is integrated with an OMS solution from FlexTrade to execute its algorithmic trading strategies. Velocity also supports adapters for Portware and InfoReach. The master order is entered into the FlexTrade OMS system, and passed over to Vhayu Velocity via the FlexTrade API, which is based on the Java Messaging Service (JMS). For each new order the overall sequence of events is outlined in the diagram below:

Vhayu Implementation
1. Trader enters order into FlexTrade API 2. Order received by Velocity over FlexTrade API 3. Good order checks performed 4. Slicing strategy chosen based on historical trading profile information For each slice: 1. New child order generated 2. Order sent to marketplace via FlexTrade 3. Acknowledgement/Execution Reports/Rejects received from market via FlexTrade 4. DLL updates original master order in FlexTrade to update trader on progress. Fix Sessions

Trader FlexTrade Trader

Points of Liquidity

Real-Time Market Data Feed

Velocity

Sample Algorithmic Trading Strategies Using Velocity with an Integrated DMA Application
VWAP StrategyTime Interval, Available or Daily
Emphasistime and volume profile

pressure on the liquidity pool at once would move the price. In order to avoid this, an algorithmic trading engine will break down the original order into many smaller orders (or slices). These can also be referred to as child orders or chunks. The size and frequency of the slices are decided by the strategy, using the user parameters and historical/real-time data. The slicing is decided based primarily upon the chosen execution strategy and historical profile information. This information is provided by a Vhayu application dll, which exposes the tb_profile command. This command breaks down the historical trade data into chunks of varying widths, giving vital input to the algorithms being used. For each chunk returned, some of the data returned includes:

Volume weighted average price (VWAP) is typically used for longer duration trades when levels of higher liquidity are predicted by analysis of the volume profile. VWAP strategies vary based on the traders objective, but in general the goal is to achieve an average execution price for a security in line with the desired VWAP benchmark, without adversely moving the market. Time interval VWAP is optimal when the trader is instructed to be out by a specific time, which requires tick-by-tick analysis from first execution to last fill to generate a more accurate result. Available VWAP is for the time the order arrives on the desk until the order is filled. Finally, daily VWAP is a broad strategy that calculates VWAP from market open until close.

Time AvgVolume AvgDVolume% Avg#Trades AvgDTrades% AvgVWAP

Start of time period Average volume from time to (time + width 1) Average percentage of daily volume this represents Average number of trades in this period Average percentage of daily trade number this represents Average VWAP during this period

Target Volume Participation Strategy

Emphasisliquidity

Conclusion
With the addition of Vhayu Velocity, the investment bank now has the same trading technology capabilities as the worlds top ten brokerage firms, each of which spend millions of dollars a year on support. For a fraction of the cost, this investment bank now offers state-of-the-art algorithmic trading services to its clients across global markets. It delivers more profitable trade executions based on real-time market information as well other sources such as reference data and historical trading information. The firm was an early adopter and proponent of the Vhayu Velocity platform. This firm believes that choosing Vhayu has given it an edge in the algorithmic trading space years ahead of what it could have achieved from building a solution itself.

This strategy trades a security, optimally achieving a target volume participation rate as a specified constant percent of the actual market volume, regardless of price. For example: buy 500,000 of GOOG starting at 10:30 a.m. and represent 10 percent of the volume. This order will fully complete once 5,000,000 shares of GOOG have been traded following 10:30 a.m. Target volume participation strategy anticipates volume based on market conditions and generates orders in a manner that provides liquidity while minimizing the cost of the bid/ask spread.

Order Staging
Emphasisliquidity and time

Since the quantities in question are typically large, placing a single order in the market for this quantity would not result in an advantageous price for the purchases. Putting that much

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