Bloomberg Tradebook, the global agency brokerage business, has launched a Relative Benchmark Trading Algorithm on its PAIR cross-asset trading platform. The added algorithm gives Tradebook users the ability to customize how they trade securities relative to benchmarks they choose, according to Michael Baradas, cross-asset product manager at Bloomberg Tradebook.
“Active investors are trying to find assets that aren’t correlated to the market. In individual constituents of an index, correlation may be high at times, or there may be opportune times when it’s not correlated,” said Baradas. “That’s when active managers believe they can outperform. … The Relative Benchmark Trading Algorithm lets them do that. Given a benchmark like the S&P 500, it lets the trader or portfolio manager set certain parameters, so when a security is underperforming the index, they are buying, or when it’s outperforming, they’re selling.”
The PAIR platform, launched in 2009, allows simultaneous trading of multiple asset classes, and is integrated with the Bloomberg Professional service, thus leveraging Bloomberg’s data resources.
“Exchanges have different rules for price ticks, order sizes and messaging, and how many orders you can send,” said Baradas. Such rules may prevent algorithms from working. “Having the knowledge and access to all that data in real-time — and having the Bloomberg network to connect to all these exchanges and take in that data feed makes the algorithm more powerful,” he added.
PAIR’s Relative Benchmark Trading Algorithm can adjust itself depending on the rules in whichever market is the venue for a trade, explained Baradas. “The customer sees the same ticket,” he said. “They’re just buying one security and selling another one. They define that relationship and the algorithm on the back end understands those differences.”
The next capability Bloomberg may add to the algorithm is the ability to work with customized benchmarks and indices, added Baradas. “Fund managers and investors are trying to outperform their peers, so if they can find an edge with their own quants and their analysis is a better benchmark to track against, they can create custom indices on the Bloomberg terminal,” he said. “Tradebook would have a way to get that custom index to use to trade against.”