EXECUTION SERVICES

Algorithmic Trading

Algorithmic Trading
Part of the Crdit Agricole Group, CA Cheuvreux is the leading pure-agency European equity broker. Its historical multi-local model positions CA Cheuvreux as a cutting-edge outperformance provider for its 1,200 institutional investor clients. CA Cheuvreux offers extensive, high value-added services in Research, Sales and Execution. With 90 analysts and economists, and unparalleled coverage of 700 stocks, CA Cheuvreux is continuously ranked in the Top 5 for European Country research and a Top 3 European Corporate Access provider. CA Cheuvreux provides extensive market access to 100 execution platforms worldwide including all major MTFs and dark pools. Ranked No. 3 in Sales Trading Client Service & Trading Ideas/Updates, CA Cheuvreuxs execution specialists offer a wide spectrum of first-class products: DMA, Algorithmic Trading, Global Portfolio Trading, Equity Swaps and its own internal crossing engine Blink.

TRUE AGENCY BROKERAGE

EXTENSIVE MARKET KNOWLEDGE

CA Cheuvreux is a member of the AA-rated Crdit Agricole Group, one of the worlds leading banking institutions. With 120 execution specialists on 100 execution venues, CA Cheuvreux offers an access to global markets - Europe, the Americas, the Middle East, Asia Pacific* and Africa.
Fast, secure execution with zero information leakage

In-depth understanding of local markets combined to a broad range of sophisticated trading strategies.
CA Cheuvreux is a member of all the major stock exchanges and offers a reliable point of entry to global markets via partnerships with others entities of the Crdit Agricole Group.

LEADING EXECUTION TOOLS

STRIVING FOR EXCELLENCE

Giving you an edge through continuous improvement of our algorithmic tools and the development of new models.
CA Cheuvreuxs advanced research platform ensures a quality algorithmic model performance. Our edge comes from our advantageous market position and subsequent commitment to cutting edge technology.EXTENSIVE
* Through our sister company CLSA

Our state-of-the art selection of execution tools is available to help you trade in line with the market, capture liquidity or increase alpha return.
CA Cheuvreux offers a range of products that complement and enhance the service offering for you and can be used advantageously in conjunction with Algorithmic tools. This sophisticated range of trading tools is constantly evolving to meet changing client demands.

YOUR ALGO CONTACTS Europe: + 44 207 621 66 88 cats@cheuvreux.com US & Canada: +1 212 492 8860 nycats@cheuvreux.com

CA Cheuvreuxs algorithms fall into two main categories: benchmark and liquidity seeker. Benchmark algorithms (VWAP, Implementation Shortfall, % Volume, Target Close, TWAP, InLine) are better suited for longer duration orders (from 30 minutes to one day, depending on the liquidity of the traded stock), because they control the execution rate. Conversely, the shorterterm liquidity seekers (CrossFire, Hunt, Iceberg) can execute 100% of an order very rapidly if market conditions are compatible with the order parameters. OUR ALGORITHMS ARE BASED ON TWO MAIN MECHANISMS:
Mechanism 1: on-the-fly computation of trading envelopes
These trading boundaries are based on our recent continuation of the original work of Almgren and Chriss1 showing that it is possible to build optimal trading curves for almost any benchmark2. Optimal highest and lowest execution rates are computed; such rates vary with time (Figure 1).
100 90 80 70 Pourcentage 60 50 40 30 20 10 0 10:04 10:26 10:28 11:09 11:31 11:52 12:14 12:36 12:57 13:19 13:40

Stop contributing to avoid going too fast

Aggressive contributions to avoid missing quantities

Figure 1: The monitoring of a real order: the trading curve is in red, the trading envelope in dark blue, the market curve in light blue (as a percentage, it can only be known at the end of the trading period, but is plotted here as a post-trade reference), and our execution curve in black.
14:02

Slices are then sent to the market within this envelope (more aggressively when the execution curve is close to the minimum boundary, and more passively when it is close to the maximum one). The trading envelopes are computed in real time using usual volume curves, usual volatility curves and market impact models.

Mechanism 2: optimal adjustment of price and quantity to adapt to market conditions

Most of our benchmark algorithms have a feature enabling them to react to intra-day volatility changes. Our CrossFire algorithm also uses such a mechanism to capture liquidity on any combination of lit and dark venues, adjusting prices and rebalancing quantities in order to take into account market flows. As in the case of trading envelopes, this feature is derived from state-of-the-art research, namely the high-frequency component of the Almgren - Chriss framework3. This mechanism is based on two empirical facts: firstly, volatility is a good proxy for a real spread and can thus be used to choose the optimal price of a passive order. Secondly, since volatility is a non-directional measurement, it has to be accompanied by the execution flow that is in practice captured by an algorithm at a given level of price (the faster an order is executed, the more likely the market is moving in your direction). The combination of volatility (public information) and your fill rate (private information) provides a methodical way to control the price levels and the size of the slices of the algorithms.
8 7
70 60

Traded volumes (pct)

Intra day volatility (bp / 10 min)

6 5 4 3 2 1 0
09. 09. 10. 11. 1 11. 5 12. 13. 13. 14. 15. 15. 16. 17.

50 40 30 20 10

15

55

35

35

15

55

35

15

55

35

15

09.

15

09.

55

10.

35

11. 1

11. 5

12.

35

13.

15

13.

55

14.

35

15.

15

15.

55

16.

35

17.

15

Figure 2: A typical European volume curve (at left) and volatility curve (at right). Three usual effects can be seen: (1) During the first hour of trading, the impact of the overnight price change can be seen in the markets: more shares are traded, and prices may move more than usual. (2) During the last hour of trading, investors have to settle their positions for the night. More shares are traded and volatility increases. This latter effect stems from the fact that investors who are eager to trade before the end of the day are ready to pay some market impact, rather than not having their trades executed. This market impact generates unpredictable moves in the market price, decreasing the level of certainty on the price that can be traded. (3) For European markets, North American news and the opening of North American exchanges have an impact on the intra-day rhythm: a peak in volume and volatility can be observed one hour before the opening of US exchanges, and once open, traded volumes increase.
Optimal execution of portfolio transactions, Journal of Risk, Vol. 3, No. 2. (2000), pp. 5-39, by R.F. Almgren, N. Chriss. See Rigorous Strategic Trading: Balanced Portfolio and Mean-Reversion, Journal of Trading, Vol. 4, No. 3. (2009), pp. 40-46, by Charles-Albert Lehalle, Head of Quant Research at CA Cheuvreux, or The impact of liquidity fragmentation on optimal trading, Institutional Investors Liquidity Guide (2009), also by Charles-Albert Lehalle. 3 Optimal split of orders across liquidity pools: a stochastic algorithm approach, LPMA preprint 2009 by Gilles Pags, Sophie Laruelle, Charles Albert Lehalle; presented during a guest lecture at the quantitative finance seminar of Columbia University and New York University in December 2009.
1 2

TABLE OF CONTENTS
LIQUIDITY SEEKER
CROSSFIRE POUNCE HUNT ICEBERG M.O.C. p6 p7 p8-9 p10 p11

BENCHMARK
VWAP % VOLUME SLIDING VOLUME % IMPLEMENTATION SHORTFALL TWAP IN LINE TARGET CLOSE p12-13 p14-15 p16-17 p18-19 p20-21 p22-23 p24

PAIR TRADING

p25

FACT SHEET LIQUIDITY SEEKER

CrossFire
STRATEGY DESCRIPTION
CrossFire is a liquidity-capturing algorithm that will allow you to take advantage of hidden liquidity within dark venues. Its primary aim is to execute the order as quickly as possible, at the best available price, while minimising market impact and information leakage. It does this by posting only in dark liquidity venues, while also providing the option to sweep lit venues, when directed. When posting at dark venues, the algorithm will analyse participation within the various venues that are providing the most liquidity and reallocate orders to optimise performance.

AVAILABLE PARAMETERS
PERIOD (START-TIME & END-TIME) PRICE STRATEGY

- Used to specify time period over which the order is worked.

LIMIT

- Midpoint.

- MANDATORY Used to put a price constraint on the order so that trading only occurs within this limit.

QUANTITATIVE MODEL
CrossFire allows the trader to send an IOC at a marketable limit to multiple ATSs, or dark pools. This takes advantage of any possible hidden liquidity in these new vehicles. Prior to entering the order, CrossFire allows the trader to decide what to do with the balance of the order following the initial IOCs. Options include repeatedly hitting the ATSs with IOCs, posting to ATSs, posting the balance to the smart order router (or another algorithm), or releasing the balance back to the trader to work as he sees fit. CrossFire also allows the trader to split part of the order to standard lit markets to take advantage of all possible liquidity.

EXAMPLE

BUY 250,000 WEIR LN (WEIR GROUP) AT 995P.

WOULD BE INPUT AS

BUY 250,000 WEIR LN CrossFire StartTime 09:25 End Time 16:15 Limit 995p

FACT SHEET LIQUIDITY SEEKER

Pounce
STRATEGY DESCRIPTION

US ONLY

Pounce intelligently fills an order using a fair price model.

AVAILABLE PARAMETERS
PERIOD (START-TIME & END-TIME) DARK POOLS

-  sed to specify time period over which the order is U worked .

LIMIT

-  ccess dark pools. A

URGENCY

- Used to put a price constraint on the order so that trading only occurs within this limit.

-  rgency of the order. Choose between Normal or U Aggressive.

QUANTITATIVE MODEL
The Pounce strategy works an order by watching the tape and rapidly jumping on favorable price opportunities. Using a robust, short-term fair price model, it determines when to hit or take, trying not to move the market unnecessarily. Pounce will interact with standard marketplaces, dark pools, or a combination of both.

EXAMPLE

Buy 250,000 WYE, sweep aggressively when the price is favorable and get done in dark pools if possible.
WOULD BE INPUT AS

Buy 250,000 WYE POUNCE Start Time 15:50 End time 16:00 Dark Pools YES Aggressive

FACT SHEET LIQUIDITY SEEKER

HUNT
MULTI-VENUE MODE
EUROPE ONLY

STRATEGY DESCRIPTION
Systematically hits the specified price. In other words, it provides the possibility of entering a limited buy or sell order without being visible in the market. As soon asshares are offered/bid at the specified price, it shoots. This algorithm is particularly useful for illiquid stocks. Now available in multi-venue mode: If the front-end execution execution venue field is not populated, the algo will assume that you want to take liquidity on every available venue. The order will then be worked accordingly

AVAILABLE PARAMETERS
PERIOD (START-TIME & END-TIME) MIN SIZE

- Used to specify the execution period over which Hunt is - Used to specify a minimum shooting size to avoid paying to work. the spread for small quantities and to allow the market to rebuild sufficient depth. LIMIT - If not filled, the Algo will use the stocks ATS. - Used to specify the price level at which Hunt should lift the offer/hit the bid.

QUANTITATIVE MODEL
The algorithm works like a hidden sniper, constantly watching a specific bid/offer and entering Fill And Kill orders when the specified Min Size appears, up to the specified level. If end time is past the close, the Hunt sends the amount not filled in the auction, as a strict order at limit price.

EXAMPLE

Buy 100,000 ACA, get whatever you can until New York opens without being in the market, dont act if there are fewer than 500 shares on display and dont pay more than 31.30.
WOULD BE INPUT AS

Buy 100,000 ACA HUNT Start-Time 9:00 LET End-Time: 15:30 LET Min Size 500 Limit 31.30

USER GUIDE LIQUIDITY SEEKER

HUNT
MULTI-VENUE MODE
EXECUTION PROFILE
When the min size trade is reached, get it done

Volume on the far touch Our trade

EXAMPLE

4 2 3 3 1

1 160 302 814 1 300 356

25.20 25.19 25.18 25.17 25.16

25.22 25.23 25.24 25.25 25.27

200 1 254 868 2 988 2 000

1 2 3 6 1

4 2 3 3 1

1 160 302 814 1 300 356

25.20 25.19 25.18 25.17 25.16

25.21 25.22 25.23 25.24 25.25

350 200 1 254 868 2 988

1 1 2 3 6

Hunt Buy Order is triggered with Limit 25.22 & Minimum Size 500 Because of the minimum size at 500, the offer remains untouched

A sell order for 350 @ 25.21 arrives. Hunt wakes up as there is an opportunity to lift the offer at the required limit

4 2 3 3 1

1 160 302 814 1 300 356

25.20 25.19 25.18 25.17 25.16

25.23 25.24 25.25 25.27 25.28

1 254 868 2 988 2 000 997

2 3 6 1 1

In multi-venue mode, the order book in this example would be a consolidated order book of all available venues.

Hunt has bought 550 shares (200 @ 25.22 & 350 @ 25.21)

OUR RECOMMENDATIONS
HUNT Algo is particularly suited for illiquid stocks The trigger size is also critical for the set-up of the Algo: - If its too small, the HUNT will fire too often and will be easily identified - If its too wide, the HUNT will never fire, and will not take advantage of liquidity and especially hidden orders

FACT SHEET LIQUIDITY SEEKER

Iceberg
MULTI-VENUE MODE
EUROPE ONLY

STRATEGY DESCRIPTION
Reproduces an Iceberg order, i.e. to show a smaller portion of the order to the market than the total order size. This strategy is useful for exchanges that dont support Iceberg orders. Now available in multi-venue mode: If the front-end execution execution venue field is not populated, the algo will assume that you want to take liquidity on every available venue. The order will then be worked accordingly.

AVAILABLE PARAMETERS
PERIOD (START-TIME & END-TIME) DISPLAY SIZE

- Used to specify the execution period over which the Iceberg - Used to specify the size that has to be shown on the order is to be worked. book. - If not filled, the algo will use the stocks ATS.
LIMIT

- Required to indicate the price at which orders should be placed in the order book.

QUANTITATIVE MODEL
The algorithm places a limit order with the defined price and quantity. Once this order is filled, the algorithm automatically nters another slice with the same parameters as the first, and so on until the order is completed. If end time is past the close, the Iceberg sends the amount not filled in the auction, as a strict order at limit price.

OUR RECOMMENDATIONS
The Iceberg strategy mimics an Iceberg order - It is not exactly like a market iceberg: it works as a refill order
Display size Display size

Classic Iceberg order: if possible, the entire order is filled

Cheuvreux Iceberg Algo: when a slice is done, another slice is placed automatically. The priority rank may be lost The price may also have changed

NB: If the market place supports Iceberg orders, a real Iceberg market order will be sent by the algo

EXAMPLE

Buy 100,000 ACA at 31.50 showing 5,000 at a time, good for the day.
WOULD BE INPUT AS

Buy 100,000 ACA ICEBERG Start-Time 9:00 LET End-Time: 17:30 LET Limit 31.30 Display Size 5,000

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FACT SHEET LIQUIDITY SEEKER

M.O.C

EUROPE ONLY

STRATEGY DESCRIPTION
Submits an at market or limit order (as directed) into the closing auction of the directed market. Orders can be submitted at any point during the day and the algorithm is particularly useful for exchanges that do not accept auction orders in advance of the close. The algorithm will work on the more than 20 markets where Algos are available.

AVAILABLE PARAMETERS
LIMIT

- Required to indicate the limit price at which the order will be placed in the order book.

QUANTITATIVE MODEL
The algorithm waits for the time trigger to send the order with the defined price and quantity.

EXECUTION PROFILE
Price Actual Traded Volume Strategy Participation Rate

MOC places the order in the closing auction

EXAMPLE

BUY 20,000 National Bank of Greece at limit 15 during the closing fixing.
WOULD BE INPUT AS

Buy 20,000 ETE GA Market on Close LMT 15.00

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FACT SHEET BENCHMARK

VWAP

ALL REGIONS

STRATEGY DESCRIPTION
Attempts to match the VWAP (Volume Weighted Average Price) over a defined time period.

AVAILABLE PARAMETERS
PERIOD (START-TIME & END-TIME) MAX % VOLUME

- Used to specify the execution period over which VWAP - Used to control Market Impact by limiting the volume order has to be worked (e.g. to avoid the opening/closing participation rate. In such a case the order may not be auction or start the order at a later time, etc.). An over finished at the end of the period. the-session order, by default, will exclude the auctions.
WOULD LEVEL

- Used to enter a level at which the algorithm attempts to - Used to specify price constraints. In such a case the order complete the order. may not be finished at the end of the period. - If the order is filled at the Would Level, at the end of the period the VWAP may significantly differ from the reported price.
LIMIT

QUANTITATIVE MODEL
The algorithm slices the order according to the historical volume-curve per stock. Volume curves are adjusted intra-day in cases where significant differences between intra-day and historical volume-curves are detected. When a limit is used, should the stock trade within the limit price, the algorithm will work along its volume curve. But if the stock trades outside the limit price, the algorithm will stop trading, waiting for the price to come back within the limit. Upon returning to the limit, the algorithm will work the balance of the order in line with the volume curve for the remaining quantity. Limit-order placement is optimised to avoid paying too much of the spread, whilst trying to keep up with the volume curve.

EXAMPLE

Buy 100,000 ACA working from when New York opens until the French market closes, try to match VWAP but limit the volume participation to 20% and if the price falls to 31.30, finish it.
WOULD BE INPUT AS

Buy 100,000 ACA VWAP Start Time 15:30 LET End-Time: 17:30 LET Max % Volume : 20 Would Level 31.30

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USER GUIDE BENCHMARK

VWAP
EXECUTION PROFILE
Changes in price and volume traded have no effect on the strategy.
Price Actual Traded Volume Historical Volume Pattern Strategy Participation Rate

VOLUME CURVE CALCULATION

For liquid stocks (~600 European stocks), a volume curve is calculated for each stock, every night, based on the past 60 days of trading (statistically optimised by our quant research team). The curve can be modified at any time by the trader.

PARAMETERS IMPACT
END TIME If the end time includes the fixing, a quantity (calculated in function of the average quantity traded at fixing, over the past 60 days) is sent to the market at fixing. VOLUME DELAY In case of volume delay (due to a limit), the delay can be treated in 2 different ways: - Volume catch-up: the volume delay is caught up as soon as possible. This is the default mode. Warning: this could create a resistance on which the stock can rebound. - Volume re-sliced: the slices of volume are re-calculated, the volume to catch up is spread over the remaining slices. This smoothes the volume catch-up. To select this mode, the trader has to stop and restart the Algo.
Limit Delay is taken Price Actual Traded Volume Historical Volume Pattern Strategy Participation Rate Limit

Volume catch-up. The volume can also be spread on the remaining periods

For a buy order, if the price goes above the Limit, the algo stops participating. In this case, there is a risk that the order will not be finished

OUR RECOMMENDATIONS
VWAP Algo is particularly suited in following trading situations: - Trader has no vision on the momentum (expected price variation) - Trader wants to limit market impact - Trader wants to be sure to finish the order
Price Actual Traded Volume Historical Volume Pattern Strategy Participation Rate

RECOMMENDATION
Set up a max % volume limit to prevent market impact, especially during low activity periods.

The Max % Volume caps the participation rate. If the parameter is set too tight, there is a risk that the order will not be finished

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FACT SHEET BENCHMARK

% Volume
STRATEGY DESCRIPTION

ALL REGIONS

Execution in line with prevailing volume at a target participation rate until the order is completed.

AVAILABLE PARAMETERS
PERIOD (START-TIME & END-TIME) WOULD LEVEL

End-Time is used to stop the order at a specific time if there Used to enter a level at which the algorithm attempts to has not been enough liquidity to complete it at the target complete the order. participation rate.
EXECUTION STYLE

This parameter determines the trade-off between improving Used to put a price constraint on the order so that trading the execution price (placing instead of paying the spread) only occurs within this limit. and adhering to the volume participation rate. Four levels are available : Very aggressive (adheres as close MAX % VOLUME as possible to the participation rate; more likely to pay the Used to specify the target participation rate. spread), Aggressive, Neutral, Passive (tries to improve the The algorithm automatically caps this field at 50% of the execution price; more likely to be behind the participation volume. The 50% cap can be overridden manually within rate; less likely to pay the spread.) Cheuvreux upon request.
LIMIT

QUANTITATIVE MODEL
The algorithm tracks the real-time market volume and tries to match the target participation rate. If the price does not move, the algorithm places orders to avoid paying the spread unnecessarily. The algorithm dynamically calculates the execution spread, i.e. the maximum discretion to pay the spread in order to catch up on volume. When a stock is listed on multiple markets, the performance will generally be better on the exchange where liquidity is highest.

EXAMPLE

Buy 100,000 ACA, participate at 33% of volume, but stop it at 15:00 if there is not enough liquidity to finish it before, dont pay more than 31.30 and if the price falls to 31.15, finish it. Be aggressive.
WOULD BE INPUT AS

Buy 100,000 ACA % VOLUME Start-Time 9:00 LET End Time: 15:00 LET Max % Volume: 33 Limit 31.30 Would 31.15 ExecStyle Aggressive

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USER GUIDE BENCHMARK

% Volume
EXECUTION PROFILE
Volume Price Actual Traded Volume Strategy Participation Rate

Changes in price have NO effect on the strategy

Time

PARAMETERS IMPACT
EXECUTION STYLE This parameter fixes the tolerance of the Algo with the target participation rate. The more aggressive it is, the more the Algo will cross the spread to get the volume at best opposite price.
Target participation rate PASSIVE No delay on the participation rate; the Algo has the ability to take some advance. Spread is crossed more often; risk to deteriorate price performance Mostly used for relative small orders, on liquid stocks Try to capture the spread and obtain a good price; no pressure on the volume risk to be behind the participation rate

NEUTRAL AGRESSIVE

VERY AGRESSIVE Tolerance

That tolerance is calculated as a function of the stock, the average spread and the proximity with the limit. The spread we accept to pay if we are behind the volume (the Execution Spread) depends on the Execution Style: ExecSpread = AverageBidAskSpread * ExecutionStyleFactor
Calculated as the AverageBidAskSpread, on the period where the Algo has been late Increases with the aggressiveness of the Execution style selected

Price Actual Traded Volume Strategy Participation Rate

WOULD LEVEL For a buy order, if the price falls below this limit, the Algo tries to finish the order

LIMIT For a buy order, if the price goes above this limit, the Algo stops participating

OUR RECOMMENDATIONS
gr ver es y siv e Ne u ut
Unfavourable momentum

Ne

Ag

Pa s

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FAVOUR PRICE Favourable momentum

P re as ss siv ive e

siv N e eut

v re ery ss ive

siv

Neutral momentum

ra l

Ag g

gr es

siv

Ag

Pa s

15

VERY GOOD VOLUME TRACKING SIGNIFICANT RISK ON PRICE

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gr es

siv

Ag

FAVOUR VOLUME

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VERY GOOD PRICE SIGNIFICANT RISK ON VOLUME

THE EXECUTION STYLE is modifiable during the functioning of the Algo. If the volatility increases, it is recommended to push the execution style to a more aggressive style, to follow the increase of volume.

tra

FACT SHEET BENCHMARK

Sliding Volume %
STRATEGY DESCRIPTION

EUROPE ONLY

SVP (Sliding Volume Participation) automatically adjusts the targeted participation rate according to the price until the order is completed.

AVAILABLE PARAMETERS
PERIOD (START-TIME & END-TIME) LIMIT PRICE

- End-Time is used to stop the order at a specific time if there - Used to put a price constraint on the order so that the has not been enough liquidity to complete it in the price range. participation rate varies from that limit towards the order entry price.
ORDER ENTRY PRICE

- It is the price of the target participation rate.

REF % VOLUME

WOULD LEVEL

- Used to specify the target participation rate (at the money).

- Used to put a price constraint on the order so that the participation rate varies from that Would Level towards the order entry price. - Min and Max %Volume can also be parametered.

QUANTITATIVE MODEL
The algorithm tracks the real-time market volume and tries to match the participation rate which adjusts itself according to price movements between the pre-defined Limit/Would price band.

EXECUTION PROFILE
BUY ORDER Price Order Entry price Strategy Participation Rate

Participation slows down as price rises above the order entry price Participation increases as price move in your favour

EXAMPLE

Buy 100,000 ACA, participate at 33% of the volume for the current price, accelerate to 50% if the price falls to 22.20, slow down to 10% if the price moves towards 22.80.
WOULD BE INPUT AS

Buy 100,00 ACA SVP Start time 9:00 LET End Time 15:00 LET Max % Volume 50. Ref % volume 33 Min % vol. 10 Limit 22.80 Would 22.20 Ref price 22.40

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USER GUIDE BENCHMARK

Sliding Volume %
EXECUTION PROFILE
In addition to the time parameters, 6 parameters have to be defined, to personalize the algo at your convenience:
PRICE PARAMETERS Limit Price Order Entry Price Would Level PARTICIPATION RATE PARAMETERS Min %Volume (default value 10%) Ref %Volume Max %Volume (default value 50%) COMMON CONFIGURATION:
Price Limit

Order Entry Price Would Level

Min % Volume Targeted % Volume Max % Volume

Participation rate

Default values (min and max % volume) can be changed, for any customer requirement

OTHER SUGGESTED CONFIGURATIONS

SVP can be parametered to function in a large variety of ways:
Price Price Price

Participation rate
Constant participation rate out of the money Extra aggressiveness in the money

Participation rate
Constant participation rate in the money Extra aggressiveness out of the money

Participation rate
Low participation rate at the money Extra aggressiveness out and in the money

PARAMETERS IMPACT
Limit Price

Price Would Level Order Entry price Strategy Participation Rate

For a buy order, if the price falls below this level, the Algo tries to finish the order

For a buy order, if the price goes above the limit, the Algo stops participating

OUR RECOMMENDATIONS
The parameters of the SVP Algo allow you to emulate an IS Algo, offering more sensibility to your own constraints. It is perfect to capture the mean reversion, in stable market conditions.

The SVP works as a mean reversion capture Algo Price Price

Like all limited orders, limits must be re-adjusted in case of price variation. Otherwise, the order may not be finished. The limits are set too wide. No significant difference in term of performance between the SVP and the %Volume Algo

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FACT SHEET BENCHMARK

Implementation Shortfall
ALL REGIONS

STRATEGY DESCRIPTION
The main sources of uncertainty that have to be assessed to successfully manage an implementation shortfall strategy are the market risk and the price impact of the orders to be executed. Minimizing the possible negative effects of the market risk on the trades is already handled by VWAP and other low percentage of volume algorithms, performing systematic and regular executions. Bringing price impact under control is very specific to implementation shortfall algorithms. The algorithm must be able to quantify the potential movements of the price caused by a given volume in a given stock at a given hour of the day. Implementation Shortfall (IS) automatically replicates the traders behaviour around market impact and volatility risk and adjusts its participation rate accordingly, increasing it noticeably when the stock trades in the money versus the Arrival Price. The algorithm is designed to require minimum input from the user.

AVAILABLE PARAMETERS
PERIOD (START-TIME & END-TIME) EXECUTION STYLE

- End-Time is used to stop the order at a specific time if - This parameter determines the curve of the execution profile there has not been enough liquidity to complete it in the and the trade-off between limiting the market impact and price range. reducing the time to market by increasing the participation rate. LIMIT - Four levels are available: very aggressive, aggressive, neutral - Used to put a price constraint on the order so that trading and passive ; the more aggressive, the quicker the strategy only occurs within this limit. will be implemented and the volatility risk reduced. On the other hand, reducing the aggressiveness reduces the WOULD LEVEL potential market impact of the strategy while increasing the - Used to enter a level at which the algorithm attempts to volatility risk. complete the order.

QUANTITATIVE MODEL
Each time the IS algorithm is used, it builds an on the fly nonparametric model of the price impact for the order. Based on historical data of the behavior of the price under similar conditions, this model computes a trading range in which the price is likely to stay during the trade.
The IS algorithm combines this trading range with other parameters to calibrate the volume to deal at each price level, so that more volume will be traded when there is a low probability to trade in a price impact zone, and less volume will be traded when the probability of price impact is high. This combination of trading range and volume to be executed lowers the probability of price impact. Real-time indicators and historic references are computed and, when necessary, trigger a re-determination of the trading range. THE TRADING RANGE DEPENDS ON:

- The security (Volatility, mean spread, market micro-structure) - The order (Size of the order compared to historical traded volume, time of arrival on the market) - The Execution Style

EXAMPLE

Buy 100,000 ACA. Target the arrival price.

WOULD BE INPUT AS

Buy 100,000 ACA IS

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USER GUIDE BENCHMARK

Implementation Shortfall
EXECUTION PROFILE
BUY ORDER Price Price Trading Range Strategy Participation Rate

Trading range 2 and reassesses it when necessary 1 IS algo determines the trading range Time

Participation slows down as price rises above the order entry price

Participation increases as price moves in your favour

PARAMETERS IMPACT
ALL PARAMETERS ARE OPTIONAL The only input needed from the user: Buy/Sell, Quantity, Stock
EXECUTION STYLE

The Execution Style will affect the functioning of the strategy in two ways: - Speed of strategy implementation. The more aggressive the style, the bigger the participation rate would be. The risk of market impact will be increased, but the order may be finished quicker. - Management of the order book positioning of the various slices.

WOULD LEVEL For a buy order,if the price falls below this level, the Algo tries to finish the order

Would Level Order Entry Price Price Strategy Participation Rate

LIMIT For a buy order, if the price goes above the limit, the Algo stops participating

Limit Price Order Entry Price Price Strategy Participation Rate

OUR RECOMMENDATIONS
The IS strategy is used for orders that are benchmarked versus the Arrival Price.

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FACT SHEET BENCHMARK

TWAP

ALL REGIONS

STRATEGY DESCRIPTION
Executes an order using time-linear slicing, i.e. worked in equal slices across the specified time frame.

AVAILABLE PARAMETERS
PERIOD (START-TIME & END-TIME) MAX % VOLUME

- Used to specify the execution period over which TWAP - Used to control Market Impact by limiting the volume (Time-Weighted Average Price) is to be worked. participation rate. In such a case the order may not be finished at the end of the period.
LIMIT

- Used to place price constraints on the order. In such a WOULD LEVEL case the order may not be finished at the end of the period. - Used to enter a level at which the algorithm attempts to complete the order. - If the order is filled at the Would Level, at the end of the period the TWAP may significantly differ from the reported price.

QUANTITATIVE MODEL
Same model as the VWAP algorithm except that the volume curve is flat; therefore the order is sliced according to time (e.g. for an order that is to be worked over one hour, 25% will be completed after 15 minutes).

EXAMPLE

Buy 100,000 ACA during the next hour, dont pay more than 31.30 and if the price falls to 31.15, finish it.
WOULD BE INPUT AS

Buy 100 000 ACA TWAP Start-Time 11:00 LET End-Time: 12:00 LET Limit 31.30 Would 31.15

20

USER GUIDE BENCHMARK

TWAP
EXECUTION PROFILE
Changes in price and volume traded have NO effect on the strategy

Price Actual Traded Volume Strategy Participation Rate

PARAMETERS IMPACT
END TIME If the end time includes the fixing, a last slice is sent to the market at fixing.
COMPARISON TWAP/VWAP LIMIT
Limit Price Actual Traded Volume Strategy Participation Rate

If the price falls at the end of the day (buy order), performance will be better with a VWAP Algo, as it over-weights the end of the day

For a buy order, if the price moves above the Limit, the algo stops participating. In this case, there is a risk that the order willnot be finished

VOLUME DELAY Works on the same principle as the VWAP Algo. If the order is behind the volume, due to a price limit, then the Algo will try to catch up as soon as the price comes back to its limit, or a new curve can be calculated to spread the balance of the order over the rest of the trading period; this would require trader intervention.

OUR RECOMMENDATIONS
If you are buying and you expect the price to rise after NY open, using TWAP will give you an average price better than VWAP as you will make more volume , before NY opening than VWAP .
RECOMMENDATION
Set up a max % volume limit to prevent market impact, especially during low activity periods. The Max % Volume caps the participation rate. If the parameter is set too tight, there is a risk that the order will not be finished
Price Strategy Participation Rate

21

FACT SHEET BENCHMARK

In Line
STRATEGY DESCRIPTION

EUROPE ONLY

In Line automatically replicates the traders behaviour around market impact and volatility risk and adjusts its participation rate accordingly, increasing it noticeably when the stock trades in the money versus the Arrival Price. The algorithm is designed to require minimum input from the user.

AVAILABLE PARAMETERS
PERIOD (START-TIME & END-TIME) WOULD LEVEL

- End-Time is used to stop the order at a specific time if - Used to enter a level at which the algorithm attempts to there has not been enough liquidity to complete it in the complete the order. price range.
EXECUTION STYLE

- This parameter determines the curve of the execution profile - Used to put a price constraint on the order so that trading and the trade-off between limiting the market impact and only occurs within this limit. reducing the time to market by increasing the participation rate. REF PRICE - Four levels are available: very aggressive, aggressive, neu- Used to enter a level at which the algorithm switches to a tral and passive ; the more aggressive, the quicker the fixed participation rate. strategy will be implemented and the volatility risk reduced. On the other hand, reducing the aggressiveness reduces the potential market impact of the strategy while increasing the volatility risk.
LIMIT

QUANTITATIVE MODEL
Each time the In Line algorithm is used, it builds an on the fly nonparametric model of the price impact for the order. Based on historical data of the behavior of the price under similar conditions, this model computes a trading range in which the price is likely to stay during the trade.
THE TRADING RANGE DEPENDS ON:

- The security (Volatility, mean spread, market micro-structure) - The order (Size of the order compared to historical traded volume, time of arrival on the market) - The Execution Style After that submission phase, the trading range is not re-determined. The participation rate remains constant above the trader price (buy order), and the Algo has a module that manages extra-aggressiveness on top of the determined volume participation rate when in the money (under the Ref Price) (see next slide).

EXAMPLE

Buy 100,000 ACA In Line.

WOULD BE INPUT AS

Buy 100,000 ACA In Line

22

USER GUIDE BENCHMARK

In Line
EXECUTION PROFILE
BUY ORDER Price

Trader Price f (aggressiveness) Ref Price Would

Extra aggressiveness in the money added to the original slope by liquidity sweep module

The slopes of the execution profile depend upon the Execution style
Participation rate

PARAMETERS IMPACT
ALL PARAMETERS ARE OPTIONAL The only input needed from the user: Buy/Sell, Quantity, Stock
EXECUTION STYLE

The Execution Style will affect the functioning of the strategy in two ways: Speed of strategy implementation. The more aggressive the style, the bigger the participation rate would be. The risk of market impact will be increased, but the order may be finished quicker. Management of the order book positioning of the various slices.

WOULD LEVEL For a buy order, if the price falls below this level, the Algo tries to finish the order

Would Level Order Entry Price Price Strategy Participation Rate

LIMIT For a buy order, if the price goes above the limit, the Algo stops participating

Limit Price Order Entry Price Price Strategy Participation Rate

Under the Ref price, the Algo will sweep available liquidity at carefully intervals, allowing the order book to restructure before firing.

OUR RECOMMENDATIONS
The In Line strategy is used for orders that are benchmarked versus the Arrival Price.

23

FACT SHEET BENCHMARK

Target Close
STRATEGY DESCRIPTION

EUROPE & US ONLY

The main sources of uncertainty that have to be assessed to successfully manage an implementation shortfall strategy are the market risk and the price impact of the orders to be executed. Minimizing the possible negative effects of the market risk on the trades is already handled by VWAP and other low percentage of volume algorithms, performing systematic and regular executions. Bringing price impact under control is very specific to implementation shortfall algorithms. The algorithm must be able to quantify the potential movements of the price caused by a given volume in a given stock at a given hour of the day. The Target Close algorithm manages the market impact on the closing fixing by optimising the start time of the order. The algorithm is designed to require minimum input from the user.

AVAILABLE PARAMETERS
LIMIT EXECUTION STYLE

- Used to put a price constraint on the order so that trading - This parameter determines the profile of the execution only occurs within this limit. curve and the trade-off between limiting the market impact and reducing the time to market by increasing the CONTINUOUS %VOL participation rate at the closing fixing. - Used to put a cap on the percentage of the volume in - Four levels are available: very aggressive, aggressive, neutral continuous trading. The balance of the order will be and passive ; the more aggressive, the later the strategy will be executed at the fixing. implemented and the volatility risk reduced. On the other hand, reducing the aggressiveness reduces the potential market AUCTION %VOL impact of the strategy while increasing the volatility risk. - Algo will leave a maximum of that percentage of historical auction volume. The default is set up at 30%.

QUANTITATIVE MODEL
When Target Close receives an order, it determines the appropriate start time and execution curve to obtain an average price as close as possible to the departure price. Target Close algo determines the optimal start time of the strategy, and the curve of execution, depending on the parameters of the order.
13:15 13:30 13:45 14:00 14:15 14:30 S3 14:45 15:00 15:15 15:30 15:45 16:00 16:15 16:30
100,0% 90,0% 80,0% 70,0% 60,0% 50,0% 40,0% 30,0% 20,0% 10,0% 0,0%

Percentage done

EXAMPLE

Buy 100,000 ACA. Target the closing price.

WOULD BE INPUT AS

Buy 100,000 ACA Target Close

24

13:00

S1

FACT SHEET

Pair Trading

EUROPE & US ONLY

STRATEGY DESCRIPTION
CA Cheuvreux has a dedicated team of pairs traders to offer an efficient and professional service. Our Pair Trading solution continuously monitors the market prices for the securities involved in a Pair or Spread trade. The system will look to buy and sell the relevant equities when the client defined spread/ratio/premium or discount can be achieved. The Algorithm can be adjusted by using liquidity restraints to maximise volume or price advantage, lowering impact and increasing the chances of successful trade completion. The system can take volume from the Bid and Ask as well as the Hit/Lift levels.

AVAILABLE PARAMETERS
LEG A AND LEG B PAIR TYPE

- Used to specify the two stocks to trade against each other.

- Used to specify the type of pair: ratio, spread or premium pair. - Note that the system is able to trade cross-currency pairs with FX
hedging.

Trades can be weighted using share multipliers, cash amounts, FX levels or any combination of the three. The system is flexible enough to cope with Risk/Merger Arbitrage pairs, Statistical Arbitrage and Long/Short trades in related securities. The algorithm employs sophisticated leg management, allowing completion of one leg tranche first depending on liquidity, or enabling a max Volume % on the legs in order to minimise impact should it be required.
WITH THIS STRATEGY, ONE STOCK IS TRADED VERSUS ANOTHER, DEPENDING ON YOUR CHOICE OF DIFFERENT PARAMETERS:

- Ratio pairs: the ratio between the two stocks (A / B) - Spread pairs: the spread between the two stocks (A - B) - Premium pairs: combining the ratio with a premium: ((A / B) + x) - Share multipliers and cash amounts can be incorporated into these basic calculations.
NB: Pairs Trading is not yet available via front-ends: Please call Cheuvreux Pair Trading Desk in Paris (+33 1 41 89 77 77) or London (+44 207 621 5289)

QUANTITATIVE MODEL
The traders use a system that they can fully parameter according to your needs. The system uses order book information and state-of-the-art trading algorithms to monitor and automate the execution of pairs orders as much or as little as the trader requires. The algo looks beyond the bid and ask to accurately assess where it should be in the market, reducing your impact and improving your execution, while leaving you in full control of the degree of risk you take. When a pair reaches your level, the system reacts in milliseconds to place the right orders at the right levels to provide you with excellent executions. It also includes specific features to allow you to manage your foreign exchange exposure.

EXAMPLE

BUY 100,000

FRANCE TELECOM SELL 800,000 BRITISH TELECOM WHEN (FTE.PA / BT.L) < = 7.8574

25

CONTACTS
General Hotlines:
Paris: +33 1 41 89 80 88 London: +44 207 621 66 88 New York: +1 212 492 8850 e-mail: execution@cheuvreux.com

OTHER PUBLICATIONS
MONTHLY UPDATE JULY 2011
Austria Greece Denmark Turquoise USA

Global Research
December 2010

Market Indicators
% time at BEST BID & OFFER with greatest size* DARK (MID-POINT) MARKET SHARE % time at BEST BID &OFFER*

EXECUTION SERVICES

Execution Services
Direct Market Access
Anonymous, Fast, Reliable

UAE France Norway Turkey Switzerland Canada Saudi Arabia Spain

AVG DAILY NO. of TRADES

THREE-MONTH TREND

Ireland Mexico Bulgaria

Regulatory adjustments: a new hope

The current market configuration (high correlations with low volatility) has been picked up by the microstructure
High-frequency arbitrageurs and market-makers find it easier to hedge their liquidity-providing positions and as a result correlations increase and volatility decreases, so long as no real shock occurs. The 6 May Flash Crash is a typical example of the potential consequences of such shocks.

Algorithmic Trading
Stealth Trading, Anonymity, Reduced Market Impact

AEX

EURONEXT CHI-X TURQUOISE BATS

63.0% 25.7% 6.2% 5.0% 64.1% 22.3% 7.5% 6.0% 64.2% 23.1% 7.4% 5.3% 64.8% 23.6% 6.0% 5.5% 54.1% 29.2% 8.5% 8.2% 68.2% 17.7% 7.5% 6.6% 19.7% 5.2% 4.8%

0.2% 0.7% 0.5% 0.5% 0.3% 1.0% 0.7% 0.6% 0.3% 0.7% 0.5% 0.5% 1.0% 0.4% 0.4% 1.2% 1.0% 0.6% 0.6% 0.5% 0.6% 0.6% 0.4% 0.4%

8.4

AUCTION LIQUIDITY*

ONE-MONTH TREND

TWO-WEEK TREND

Kuwait

MARKET SHARE

5 807 3 950 1 114 956

7 701 5 487 4 674 4 446 5 175 3 898 3 179 3 170 8 051 5 547 5 132 4 677 18 188 6 901 6 974 6 159 7 474 5 352 5 054 4 585 18 004 10 170 9 447 8 223 6 641 6 441 6 016

4.2 3.5 6.9 7.1 7.0 11.1 8.6 8.2 4.2 3.6 5.4 5.0 3.7 3.7 5.8 5.5 5.8 4.7 5.8 5.5 7.6 7.6 8.8 8.2 4.0 5.0 5.4

Qatar

ITG Posit Czech Republic Sweden Belgium Finland Hungary Netherlands Israel Germany BATS Trading

BEL20

EURONEXT CHI-X TURQUOISE BATS

10.1

2 877 1 659 686 547

The European market fragmented than the US

microstructure

is

more
CAC40

Global Portfolio Trading

Execution Advisory, Advanced Technology, Global Reach

Knight Link Portugal Nasdaq Poland

Sales Trading
Tailored to your needs

Cyprus
Equity Swaps: TRS & CFDs
Synthetic Prime Brokerage Cost Effective, Simple To Use

This is due to Europe's country-based structure and the concentration that prevailed before MiFID. On the one hand, the quality of a market design based on a pre-trade consolidated tape has been called into question by the 6 May event. On the other, European markets need a more robust way to convey information on the price formation process than the current situation, where most prices are pegged to primary markets. A comprehensive post-trade consolidated tape, including trades in dark pools and Broker Crossing Networks, could be a solution to protect Europe's microstructure from primary market outages such as that of NYSE Euronext on 13 October. Unless the quality of primary markets improves, Europe will probably end up with fragmentation similar to that in the US: fewer venues with more than 5% market share each.

EURONEXT CHI-X TURQUOISE BATS

9.8

9 104 5 865 2 016 1 608

DAX

XETRA CHI-X TURQUOISE BATS

6.1

5 311 6 239 1 570 1 631

FTSE 100

LSE CHI-X TURQUOISE BATS

11.0

3 396 3 278 1 009 1 071

European small/mid caps not spared by fragmentation

SLI (30)

SIX CHI-X TURQUOISE BATS

8.5

3 223 1 810 872 831 7 730

Italy Brazil Oman Romania UK

Chi-X Bahrain SmartPool

UK-listed small and mid caps are more fragmented than large caps listed on other European exchanges. We believe that there is potential for further expansion in BATS and Turquoise's market shares on small and mid caps.

CONTACTS ____________
CA Cheuvreux Stphanie Pelin
Quantitative Research +33 1 41 89 70 13
EUROSTOXX 50

CHI-X TURQUOISE BATS

Tick size: a crucial element of Ultra High Frequency market design

The current tables are not well balanced enough, in our view: tick size is often too small and its increments too large. Using the example of stocks quoting close to the thresholds defined in the FESE tables, we look at the effect of intraday tick size changes: the number of order book updates increases dramatically, and without any structural rationale, when the tick decreases. We propose more reasonable tables in the appendix to this publication.

2 367 2 383

quantresearch@cheuvreux.com

_____________ __

NYSE Arca Europe Egypt Russia Liquidnet H2O

TAG Pablo Garmon

Reference period: 1 July to 31 July 2011

* Exclusive CA Cheuvreux TAG

Europe Business Development Manager +44 207 788 7438

pgarmon@tagaudnit.com

www.cheuvreux.com

Disclosures available on www.cheuvreux.com

RESEARCH & DISTRIBUTION CENTRES

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26

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www.cheuvreux.com - September 2011

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