Financial technology company Imperative Execution, Inc. announced this week the performance results from the first eight months of operations of its IntelligentCross trading system. This AI-powered alternative trading system was designed to reduce implicit trading costs. According to Imperative Executive, IntelligentCross has matched over 1.5 billion shares since launch with an observed price impact following trade of 0.13bp—almost ten times less than the average 1.37bp following analogous execution on U.S. securities exchanges. That could equal a savings to investors of $10 billion a year at the current rate of U.S. equities daily turnover.
Imperative Execution boasts that IntelligentCross is the industry’s first “smart venue” that utilizes artificial intelligence and machine learning in order to optimize order matching and help brokers and investment managers lower trading costs and boost execution quality for their clients. The founders of IntelligentCross spent years conducting buy-side trading, and the design of IntelligentCross was derived from their experience with implementation shortfall (IS) costs (or “slippage,” as the difference between the arrival price and the execution price of a trade is called).
The Imperative Execution executive team is quick to point out that—while much of the ongoing equity market structure debate is focused on explicit costs—IS costs are huge and make up most of an investor’s trading costs.
As Imperative Execution CEO and founder Roman Ginis noted, “We built IntelligentCross to make the market more efficient by minimizing investors’ most significant trading costs: Market Impact and Adverse Selection. These implicit costs represent the lion’s share of the total cost of trading and are an invisible tax on investor returns. With more than nearly eight months of data now available to evaluate, it’s extremely gratifying to see multiple independent analyses demonstrate that we’re fulfilling our mission.”
Imperative Execution’s findings on IntelligentCross’ first eight months performance are backed up by outside sources as well. A number of independent brokers have reviewed their trading performance data over the past several months and found that IntelligentCross significantly decreased their clients’ IS costs—even as such costs continue to increase industry-wide. As noted by Tabb Group founder and chairman Larry Tabb: “The tremendous amount of market structure and trading technology innovation over the last decade has resulted in a huge decrease in the overall cost of trading, but implicit costs remain stubbornly high. Reducing these costs is almost always cited by the buy side trading community as one of their most pressing objectives. The use of AI to address this issue is one of the more novel approaches we’ve seen, and the findings of these brokers seems to be validating this approach.”