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to select the types of algorithms they used from providers ( Figure 6 ). Like last year , in 2021 the highest proportion of surveyed long-only funds chose dark liquidity seeking algos ( 59.78 %). Further proposals by European regulators to further clampdown on dark venue trading have led to resistance from many asset managers who have responded to public consultations to remind policymakers of the value that dark venue trading provides large buy-side managers . This is partly behind the continued high adoption of these kind of algos in recent years , though it is noticeable that the percentage choosing dark liquidity seeking algos has fallen by 13.16 % from 72.94 % in 2020 . Clearly over the past year long-only firms have become mindful of a broader range of considerations when it comes to their choice of algo . The percentage-of-participation algos rose to 56.96 % from 49.02 % last year , indicating strong preference for the ability to participate in volume at a user-defined rate . Two algos that have been in existence for years , volume weighted average price ( VWAP ) and time weighted average price ( TWAP ), both saw year-onyear increases in its adoption in this year ’ s survey coming in at 59.51 % and 25.75 % respectively . At a time of extreme market uncertainty and
Figure 5 : Algo usage by value trader (% of responses ) % of respondents |
2021 |
2020 |
Not Answered |
3.46 |
1.96 |
0-5 % |
5.19 |
4.71 |
5-10 % |
6.82 |
8.43 |
10-20 % |
4.55 |
6.08 |
20-30 % |
12.19 |
7.65 |
30-40 % |
6.64 |
9.22 |
40-50 % |
11.74 |
12.75 |
50-60 % |
9.65 |
22.16 |
60-70 % |
12.37 |
9.61 |
70-80 % |
6.64 |
6.47 |
80 % and over |
20.75 |
10.98 |
Figure 6 : Types of algos used (% of responses ) Algo type |
2021 |
2020 |
2019 |
% Volume ( Participation ) |
56.96 |
49.02 |
60.92 |
Dark Liquidity Seeking |
59.78 |
72.94 |
59.11 |
Implementation Shortfall ( Basket ) |
15.56 |
13.92 |
16.42 |
Implementation Shortfall ( Single Stock ) |
46.22 |
53.14 |
45.32 |
Other |
4.91 |
5.10 |
3.45 |
TWAP |
25.75 |
24.71 |
21.51 |
VWAP |
59.51 |
54.71 |
63.87 |
unpredictability , it is expected that participants turn to tried and tested methods of algo trading to navigate execution venues .
Methodology Buy-side survey respondents were asked to give a rating for each algorithm provider on a numerical scale from 1.0 ( very weak ) to 7.0 ( excellent ), covering 15 functional criteria . In general , 5.0 ( good ) is the ‘ default ’ score of respondents . In total , a record number of 1,468 ratings were received across 36 algo providers , yielding thousands of data points for analysis . Only the evaluations from clients who indicated that they were engaged in managing long-only firms have been used to compile the provider profiles and overall market review information . Each evaluation was weighted according to three characteristics of each respondent : the value of assets under management ; the proportion of business done using algorithms ; and the number of different providers being used . In this way the evaluations of the largest and broadest users of algorithms were weighted at up to three times the weight of the smallest and least experienced respondent . Finally , it should be noted that responses provided by affiliated entities are ignored . A few other responses where the respondent could not be properly verified were also excluded . We hope that readers find this approach both informative and useful as they assess different capabilities in the future . As in 2020 , this year ’ s survey analysis for the long-only results was carried out by Aite Group .
76 // TheTRADE // Spring 2021