Liquidnet and OTAS ramp up AI play

Liquidnet's acquisition of equity analytics firm OTAS Technologies is beginning to bear fruit for Australian institutional traders and investment offices, particularly following MiFID II implementation.

About 12 months into the partnership, the institutional dark pool network has launched two enhancements to its Next Gen Algo suite - a series of algorithms designed to improve trading performance.

The first enhancement is Targeted Invitations from Algos: a solution allowing buy-side traders to "intelligently seek out liquidity from traders that may not be actively trading and that may not be available on Liquidnet's platform at the time." It can then source additional liquidity simultaneously to support a block-trade.

The second enhancement is Block I Would: a solution which gives insto traders greater control and access to seek out block liquidity. Traders can now control the quantity and price to trade a block in on a conditional basis, irrespective of the trade schedule.

Both enhancements are being rolled out using Liquidnet's Virtual High Touch technology. Recently speaking to Financial Standard, Liquidnet global head of product Natasha Shamis said the improvements recognised buy-side clients were not getting the high touch coverage they once did.

Clients were looking for alternate technology solutions particularly as the European Union's Markets in Financial Instruments Directive II (MiFID II) regulation started in January. MiFID II essentially separates or unbundles the pricing of investment research and execution.

"With unbundling there's less money to pay for services and with MiFID II mandating that a best execution process has to be proven - it's hard to keep up manually and keep track of the large amount of data," Shamis said.

This is where OTAS begins to add its most value. OTAS Technologies chief executive Tom Doris also recently told Financial Standard the firm's inception was a realisation there is a foundation layer of analytics applicable across all the buy-side which could provide "the colour and analytics that years before would have been created manually within the buy-side firm or provided by the sell-side."

"On the execution side we were focused on the concept you could have this machine in the background monitoring your orders and notifying you if something unusual was happening," he explains.

"The early adopter clients were finding it difficult to satisfy what was happening in increasing a dual mandate they had which was to provide colour and market commentary back into the investment process."

Speaking to OTAS' approach to artificial intelligence and its future success, Doris said AI had always been at the core of the firm's operation. It will work to deliver better trading performance because it will be able to anticipate the most likely trade action including its context and background.

There's even scope and feasibility to have an Alexa-type system become involved in the trading platform, he said.

"It's actually an efficient an appropriate way to communicate complex analytical data to humans because with charts there's ambiguities, there's interpretations - the human eye is very poor at inferring a lot of things about the visual content of even a simple price chart," Doris said.

Both Shamis and Doris agree the technology is critical as traders try to show they can add alpha and be more relevant in the investment process in the MiFID II environment.

Liquidnet's liquidity-seeking algos leverage the network of more than 920 global institutions offering more than US$78 billion of global average daily liquidity in one place, the firm said.

Read more: AILiquidnetMiFID IIinvestmentOTAS TechnologiestechnologyFinancial Standardalgorithmsartificial intelligenceEUEuropean UnionMarketsNatasha ShamisTom Doris
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