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Executive Summary
In between the darkest place on the buy-side trader’s desktop and the public lit books, there is a plethora of activity in the form of automated dark environments. Here, buy-side traders are looking for price improvement, minimum market impact and reduced costs of trading, and they must select the dark strategy that will provide the execution results they expect.
But trading in the dark can be frustrating; negative selection is common, and they fear their orders are being pick-pocketed in the dark. Their challenge is empty to |
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employ a dark strategy that is most closely aligned with the intent on the order, but is hard to compare and measure what cannot easily be seen. As the responsibility rests with the buy-side traders to select the dark strategy, they need in-depth knowledge about the opportunities and consequences of different strategies.
Like eco-systems, dark environments serve different communities and needs and use their make-up to attract and deflect order flow. They have membership structures, taxes and tariffs, rules of behaviour and they interact with other dark environments in structured ways. The buy-side trader must make choices in relation to who he wants to trade with, what kind of execution functions he needs, the level of integrity of the environment and how his order might be exposed.
The search for execution quality in the dark is a complex affair, and one which twins buy-side analysis and selection of the most appropriate strategy with the environment that is the best fit and offers the level of protection they seek.
Only then can the buy side be confident that the execution performance will match the expectations. With a host of dark choices, the buy side needs help to manoevre, and the search for execution quality in the dark becomes a duopolistic responsibility between those who seek it and those who provide it.
The TABB Group Vision Note Decisions in the Dark: Aligning Results with Expectations in European Equities examines the techniques used by different dark environments to protect orders and to optimise execution, and looks at what the buy side needs to consider when seeking the closest match between expectations and execution results.