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NASDAQ OMX & Thesys to launch algo testing tool for US equities

First Published 9th October 2013

New Algo Test Facility operational risk management tool for complex U.S. equity markets aims to improve electronic trading ecosystem.

Manoj Narang, CEO, Tradeworx

Manoj Narang, CEO, Tradeworx

"Currently there is heightened realization that the all market participants need to adequately test software that interacts with the market, and given how much trading volume is generated algorithmically today, the testing of these algorithms has to be a key component to the industry's efforts."

New York - The NASDAQ OMX Group and Thesys Technologies, the infrastructure affiliate of Tradeworx, have announced plans to jointly launch a testing environment which will simulate trading on all major U.S. equities exchanges.

The Algo Test Facility will allow market participants to simulate their automated trading strategies against real-world scenarios, transactions, and competitors to manage their risk exposure and their capital expenditure.

The Algo Test Facility is designed to allow traders to test all aspects of their strategy from the quality of their quote processing, all the way down to order handling and the interaction of the trading algorithm with the market microstructure. By testing in advance, exchange customers can mitigate the risk of aberrant or potentially destabilizing behaviors like quote stuffing. The Algo Test Facility also aims to provide traders with risk and performance insights, including the ability to evaluate the cost of adverse selection for specific trading strategies.

"In an environment where operational costs can burden traders who need to focus on alpha generation, we are committed to offer our customers cost-efficient broker services for areas like risk management and performance engineering," said Eric Noll, Executive Vice President of Transaction Services U.S. and U.K. at NASDAQ OMX. "These broker services make it easier for all market participants to achieve operational excellence. The Algo Testing Facility is another way NASDAQ OMX integrates sophisticated technology solutions as a means for participants to reduce risk exposure in a constantly evolving electronic marketplace and regulatory landscape." Mr. Noll added.

The Algo Test Facility will be accessible through the NASDAQ OMX Data Center, customers can use their existing trading infrastructure, including risk systems, OMS and feed handlers. Each simulation will recreate market microstructure and provide a view of adverse selection, time priority, fills versus misses, latency and bursting. The first phase of the Algo Test Facility will include simulations for the NASDAQ Stock Market, and over time the test system plans to support all major U.S. equities exchanges along with their order types and protocols so user activity may interact with the historical orders of other market participants. The Algo Test Facility is powered by a Thesys Technologies platform also used by major trading firms, stat-arb firms and the U.S. Securities and Exchange Commission.
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"We are pleased to work with NASDAQ OMX to bring this revolutionary new capability to the market," said Manoj Narang, Chief Executive Officer of Tradeworx, Inc. "Currently there is heightened realization that the all market participants need to adequately test software that interacts with the market, and given how much trading volume is generated algorithmically today, the testing of these algorithms has to be a key component to the industry's efforts."

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