Bank of America Corp (NYSE: BAC) Launches New ETF Algorithm

Posted by on Jul 27th, 2010

Bank of America Corp (NYSE: BAC)’s Merrill Lynch division has launched a new “premium algorithm” for ETF trading called “ETF-aX”.

Merrill Lynch says that their new algorithm “analyzes market depth and price data across an ETF’s underlying portfolio to identify the most efficient combination of ETF, stock, and futures and then automatically trades them to source liquidity and find the best prices. “

“The primary challenge with trading ETFs is market fragmentation; liquidity is limited outside of the top-ranked ETFs,” said Charlie Whitlock, an execution consultant at BofA Merrill. “By using ETF-aX, clients are able to leverage our in-house ability to trade a combination of the component parts in different markets, gaining liquidity at more efficient pricing.”

After receiving a client’s order to trade an ETF, the engine analyzes the inside pricing and depth of the book across the ETF, stock and futures market to determine the available liquidity of the ETF. After the algorithm determines an optimal way to transact the purchase or sale that meets a balance of price and liquidity, “slices are simultaneously sent out to all market centers.” The algorithm develops a composite ETF price from the different executions and provided to clients.

“This technology has a proven and successful track record within our high-touch business,” said Michael J. Lynch, head of Americas Execution Services. “It’s a premium product that we think our electronic clients can greatly benefit from once integrated into their algo trading suite.”

Bank of America Merrill Lynch is a leading global provider of equity and options trading, sales and research services to mutual funds, hedge funds, broker-dealers, pensions, endowments and other institutions. Its award-winning algorithmic trading platform was ranked as one of the top three providers of algorithmic trading, (1) and as having one of the top three market share positions of daily global algorithmic trading volumes in 2009. (2) Bank of America Merrill Lynch is also ranked No. 2 in the World’s Best Broker by Bloomberg Markets.