Morgan Stanley launches customisable trading algorithm in Asia

Morgan Stanley will today unveil its Algorithm Manager, a tool that provides traders with greater control over the execution of individual orders. It is being rolled out first in Asia as part of the bank's global expansion of its customisable electronic trading platform and comes alongside continued growth of the e-trading team in the region.

Algorithm Manager allows traders to automatically switch an order between several different Morgan Stanley electronic trading algorithms depending on market conditions, time or quantity executed. When it receives an order, execution begins with the default algorithm. Upon the occurrence of an event or passage of time as defined in the execution template, Algorithm Manager switches to another algorithm and continues the order execution.

"Historically, algorithms have been relatively vanilla in terms of what they can do," says Zach Tuckwell, who joined Morgan Stanley in January as Hong Kong-based head of Asia-Pacific electronic trading. "You'd hit a button to trade across the day in certain time periods or at certain quantities. Algorithm Manager helps clients be a lot more flexible about how they control their trades," he adds. "In effect, it aims to mimic human trading behaviour.

"Depending on which platform you're on, you can do some creative algo switching," says Tuckwell. "You can set it up to trade when a price moves by a certain percentage or when you hit a certain quantity or in a certain time period."

Morgan Stanley quantitative staff can work with trader clients to help customise how the product works for them with regard to, say, combinations or permutations of different strategies or events.

"We're getting a lot more requests from clients for customisation," says Tuckwell. "And you've got to have a dedicated team that's able to do that. The days of simple algo strategies are numbered."

Algorithm Manager was developed under a global remit, with a significant amount of work done in Asia, says Tuckwell. And the product suits the Asian markets particularly well, because trading methods differ from country to country, and one algo doesn't fit all countries, he adds.

Moreover, says Tuckwell, the Asian client base is becoming increasingly sophisticated in its use of algorithms and is demanding more advanced functionality to help them tap into dark pools or other trading platforms.

Having just launched the product, Morgan Stanley currently has 10 clients using Algorithm Manager, says Tuckwell. Most of the trading has been done in Hong Kong and Australia so far, but it's a pan-Asian product, provided in all the markets that Morgan Stanley offers algos for.

The tool appeals to all client segments, and there has been a lot of interest, particularly from long-only managers, says Tuckwell. The bank has seen "tremendous growth" in long-only interest, with business significantly up on last year, he adds, while hedge funds are also using the product.

To service this increase in business, Tuckwell has added several e-trading executives this year, in both Hong Kong and Japan. They include Joe Butler, who joined in early June as an executive director on the electronic trading sales team in Hong Kong. He moved from investment banking and securities firm Jefferies in London, where he was a senior account executive for the electronic trading business. Wayne Trench has also joined the Hong Kong sales desk from Macquarie.

Morgan Stanley has also hired a senior executive in Tokyo from a competitor to run the e-trading business there, but declined to reveal his name. Tuckwell would only say that he will join in a few weeks' time.

There have also been a couple of transfers within the regional team, including Thomas Schmidt's move from Hong Kong in July to Sydney as a strategist on algo design. There he reports to Steve Davis, head of electronic and programme trading and transition management in Australia.

Competition is heating up in the e-trading market in Asia, with new platforms popping up all the time. Citi, Daiwa Securities SMBC, Investment Technology Group (ITG), Nomura and Tora have all set up new dark pools in recent months. Chi-East (the joint venture between Singapore Exchange and Chi-X) is to launch shortly, and volume is growing on platforms such as Instinet and Liquidnet.

"The [e-trading] market is at a tipping point; we've got new participants coming in and fragmenting the market," says Tuckwell. "That's something we've seen in Europe and the US and are very familiar with.

"It's a very hot space, which is why we're putting so much effort into building the team," he says, adding that the bank aims to continue to be a market leader in e-trading.

Other firms have also launched similarly sophisticated algo products in recent months. For example, ITG in March rolled out its Active algorithm for the Asia-Pacific region. Active aims to closely track an arrival price benchmark -- the price at the time the portfolio manager issues the instruction to trade -- and will speed up or slow down depending on price, how much volume it has to trade and what the market is doing at a given time (in terms of, say, price, depth of order book, spreads and volatility).