Now that any credibility Barclays, pardon Darklays, may have had in the capital markets has drowned at the bottom of its (soon to be shuttered) dark pool, it is time to start making fun of the bank. To do that we bring our readers the British bank's "Ongoing Commitment to Transparency", and specifiically the "Equities Electronic Order Handling" handbook.
Curiously, nowhere in said book does it say that the bank will route the vast majority of its trades to the most lucrative predatory HFT algos lurking deep in the bowels of LX, which incidentally is co-located in the Savvis NJ2 Data Center in Weehawken, New Jersey, may it rest in piece now that nobody on the buyside will ever use it again.
What it does report are the following creative lies, which we reveal to the general public because after all remember: the biggest defense the HFT lobby makes is that "whatever HFT does it never hurt retail investors." We will let retail investors decide for themselves.
First, here is how supposedly Darclays prevents "Information leakage and anti-gaming protection." As a reminder, it doesn't.
Barclays’ algorithms employ various techniques to minimize information leakage and to detect gaming activity.
These techniques include, but are not limited to, the following:
A. Symbol-specific analytics
1. Volume profiles
2. Average spreads and quote depth
3. Volatility estimates
B. Dynamic scheduling and volume forecasting
1. Intraday real-time volume adjustments to react to deviation from typical volume profile
C. Chase protection
1. Symbol-specific block exclusion logic for all participation tracking
2. Symbol-specific volatility bands prevent algorithms from immediately chasing new price levels
D. Price impact detection
1. Real-time tracking and prevention of excessive market impact created by our order
E. Randomization of Time/Size in child order placement
1. Release time of passive and aggressive child orders is randomized
2. Child order sizes are randomized and set to match order book dynamics
F. Dynamic Limit Pricing for Hidden Non-Displayed Orders
1. When routing pegged hidden orders, a local “fair price” limit is applied to prevent unfavorable executions due to short-term market movements
We will leave it up to the reader to figure out how many of these are sheer, outright lies.
We also learn the following about the types of orders Barclays accepts:
LX accepts limit, pegged, and conditional orders. For broker-dealers, ISOs are supported. Only Day and IOC TIFs are accepted. Additionally, ATS users have the option to set execution parameters based on their trading objectives on an order-by-order basis. These optional parameters include: prevention of crossing when LX detects a locked NBBO, minimum execution size, add (provide) liquidity only, and NBBO price shift protection for pegged orders.
And in table format:
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Here is the Smart Order Routing disclosure of LX:
Barclays’ Dynamic Router is the firm’s smart order router (SOR) and primary vehicle by which Barclays’ electronic orders are placed in the market for execution. When an order is marketable, the SOR will sweep and source liquidity across displayed and non-displayed venues with the objective of maximizing fill rates and minimizing information leakage. When an order is not marketable, the SOR will post the order on displayed venues to maximize spread capture. The SOR can also be used to route directed orders to specific venues (e.g., primary opening and closing auctions, IPOs).
Of note: Barclays' prop traders can and do frontrun client order flow on a consistent basis. It may explain why all the TBTF banks now report that in every passing quarter they have at most a handful of trading day loss days. The reason why? They frontrun everyone!
Barclays Equities sales and trading personnel who facilitate customer orders utilize the same suite of algorithms as those made available to clients.
Finally, this is where the HFT algos operating in Barclays LX end up executing the actual trades once they learn that a size buyer or seller is trying to lift the offer or hit the bid (hit the bid? What's that?).
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Here is the full presentation chock full of lies. Enjoy.
