[ A D V E R T O R I A L ]
CONDITIONAL
CONFUSION?
The advent of new automated conditional order types in a number of trading
venues ahead of MiFID II has left many asset managers scratching their heads. We
interviewed Chris Jackson, EMEA head of execution and quantitative services at
Liquidnet to help clarify the potential opportunities and pitfalls.
What are conditional order types?
Are they new?
Chris Jackson: Conditional orders
are considered the most basic form
of trade automation – essentially
trade orders that are automatically
submitted or cancelled if speci-
fied criteria are met. Liquidnet
has actually been using manual
conditional order types for over a
decade – it is a critical part of the
value proposition in the pool as our
members get access to far greater
liquidity than if all orders had to be
firm only.
Automated conditional order
types have been growing in pop-
ularity recently on a number of
venues, and are similar to the man-
ual type but the firm-up process is
instantaneous and expected to be
close to 100%. On BIDS/BATS the
firm-up is limited to a maximum of
2 seconds (sell-side) or 30 seconds
for the buy-side. On Turquoise
BDS, the firm-up time is limited to
500 milliseconds.
A key advantage of the manual
conditional is that our members
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TheTrade
Spring 2017
average trade size is so high com-
pared to other venues.
Chris Jackson,
EMEA head of execution and quanti-
tative services
tend to be more confident to show
real size because they get a ‘last
moment to check’ before firming
up an order. This pause is one of
the key reasons why the Liquidnet
What are the potential downsides?
CJ: Though there are advantages
to this order type when sourcing
liquidity, equally it can come with
frustrations if someone ‘fades’ on a
match, particularly in fast markets.
Our members know we take the
policing of our pool very seriously
and we work closely with individual
participants to ensure behaviour is
appropriate. However, as automat-
ed conditional orders are always
considered firm, the order size
will often tend to be smaller due to
the way that systematic orders are
executed.
Different providers of automat-
ed conditional order types will
have varying methods for policing
the firm-up process. BIDS/BATS
operate a periodic scorecard, while
Turquoise BDS publish the firm’s
reputational score on a real-time ba-
sis. This allows the broker to adjust
behaviour in real-time to ensure that
the firm-up rate remains high.