BestEx Research Group, LLC, an independent, algorithmic trading company created by industry trading veteran Hitesh Mittal, founder and CEO, is today launching an end-to-end global trading solution combining consultation with sophisticated execution algorithms, a back-testing platform and TCA in a broker-neutral model for equities, futures and FX.
Additionally, Abel Noser LLC, the agency-only brokerage subsidiary of Abel Noser Holdings, will make BestEx Research execution algorithms available to more than 500 global fund managers. “We are extremely pleased to partner with BestEx Research in the distribution of their execution algorithms to our buy side investment managers. BestEx Research is bringing innovation and a proactive methodology in defining optimal prices and routes for execution to limit spread cost and market impact that will be well received by the institutional marketplace. Abel Noser’s DNA is in cost analytics and BestEx Research dovetails very nicely because it specifically limits the factors that create slippage costs and allows us to customise and backtest these strategies for clients in a seamless way,” says Doug Rivelli, president of Abel Noser, LLC.
Mittal was the head of trading at systematic asset management firm AQR prior to starting BestEx Research. At AQR, he founded its advanced systematic trading group which designed AQR’s internal execution algorithms for spot FX, futures and equities. Prior to AQR, Mittal built out ITG’s (now Virtu-ITG) algorithmic trading products and ran that business globally.
BestEx Research solves several unique problems that are specific to FX markets, according to Mittal. The use of algorithmic trading for buy side firms is only about 10% due to the fragmented OTC market structure of FX, according to a Greenwich Associates survey, he notes. “Unlike execution algorithms provided by major banks, BestEx Research provides ‘dealer-neutral’ algorithms. Each client of BestEx Research gets their unique instance of the algorithm and chooses the set of dealers and liquidity providers from whom they want liquidity,” Mittal says.
“Bank provided algorithms simply don’t work for FX because FX is mostly an over-the-counter market. Banks themselves are the largest source of liquidity in FX and if you are using one bank’s algorithm you are missing out on liquidity from other banks. Our broker-dealer neutral model algorithms directly get liquidity from all major dealers on clients’ behalf and thus tightening the spreads and minimising information leakage at the same time,” says Mittal.
The FX execution algorithms work for all major currency pairs, forwards and swaps and are geared towards CTAs, systematic asset managers and global macro managers. The algorithms aggregate liquidity from the major banks and ECNs and use a proprietary execution algorithm developed by Mittal and his team to slice and dice a large order and minimise slippage against the mid-price at the time of order submission.
“Our differentiation is our experience, our focus on building high performance execution algorithms and our broker-neutral business model. We optimise every aspect of execution for each instrument’s market structure – trade planning, short-term price prediction, order placement, and counterparty selection. Each decision our algorithm makes is based on a rigorous quantitative framework, back tested and re-optimised over thousands of simulations,” Mittal notes.
Implicit costs in the asset management sector are extremely high due to bundling of services from banks and brokers, execution algorithms being used as a cash register rather than a point of differentiation, and conflict of interest, notes BestEx.
“BestEx Research is a new business model that is revolutionary in its impact and approach to solving the problem of performance drag in active fund managers’ returns due to high transaction costs. Our broker-neutral approach allows buy side firms to utilise our high-performance solution, while continuing to execute with the broker-dealers of their choice. Execution algorithms offered by banks and brokers have not evolved in over a decade and are stale, opaque and conflicted with their own internal liquidity pools, leaving managers to pay as much or more than management fees in implicit costs. Our next generation platform significantly cuts down these costs with iterative measurement and a systematic, quantitative approach to execution,” says Mittal.
“We aim to decouple execution algorithms from brokers and banks so institutions have choices and complete transparency into how each execution takes place,” he continues. “To date, a few sophisticated buy side firms have built a subset of these capabilities in-house, but most firms have relied on standard broker algorithms. With our pure software model, hedge funds and asset managers can significantly reduce trading costs through customised high-performance execution algorithms and have enormous flexibility in bank or broker selection,” Mittal adds.
Developed over three years, the company is focused on providing institutional fund managers with highly sophisticated execution algorithms and offering them with transparency, privacy and a simplified workflow in a broker-dealer neutral approach.
The simulation platform allows analysis of algorithm behaviour over months of tick data, while simulating the exact rules of each exchange in each market, thus eliminating the trial and error approach typically taken by the industry, says Mittal.
The algorithmic solution includes a Web dashboard that allows BestEx’s clients to customise algorithms and provides access to real-time and historical transaction cost analysis (TCA). “Our analytics provide useful insights to our clients to further improve their usage of algorithms and liquidity partners. For example, which liquidity providers are adding the most value and which liquidity providers are toxic; are they executing too fast or slow; and how much slippage can they expect if they trade larger quantities etc,” says Mittal, adding that BestEx Research does not charge its algorithmic trading clients separately for its TCA product.
BestEx Research also provides execution algorithms for equities and futures in a broker neutral model. Their algorithmic trading solution is fully managed in the cloud and co-located data centres.