EdgeTrade Algorithmic Suite

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Strategy U.S./Europe Function Objective Sample Scenario
FAN
U.S.
Europe
Sweep and probe dark pools and public markets for liquidity.
Simultaneously rest and intelligently circulate shares through-
out dark pools (and back to ATSs and public markets).
Liquidity sourcing and
best execution
Consider: BBO = 32.80 32.81 perceived liquidity is available but where? Buy 50,000 ABC @ 32.84 top. Never display greater
than 1,000 shares out loud. I want to be opportunistic. Aggressively participating in all public and dark venues simultaneously,
while adapting to shifting liquidity. My goal is to reduce opportunity cost at the expense of some potential price impact.
Covert
U.S.
Europe
Sweep and probe ATSs. Rest (post) intelligently in dark-
pools.
Dark liquidity sourcing
and best execution
Consider: BBO = 22.10 22.30 and liquidity is sparse. Sell 100,000 DEFG @ 22.00. Be passive never interacting with public venues.
Float with the inside quote, sourcing actionable liquidity in all dark pools only.
SUMO
U.S.
Europe
Time urgent.
Uses real-time and historical liquidity measures to
determine speed in completing an order.
Complete trade quickly
Minimize impact risk
Consider: BBO = 20.25 20.26 Perceived liquidity is available but where? A MKT (aggressive LMT) order may still incur price im-
pact. This is a time urgent order to Buy 50,000 XYZ @ MKT. I want to get completed immediately for the entire quantity at 20.26
if possible. Otherwise, meticulously work the order into the marketplace and back off when necessary in order to keep market
impact contained.
Oasis
U.S.
Europe
Sweep and probe dark pools and public markets using an
adaptive liquidity sourcing and anti-gaming logic that
leverages both historical information and intraday feed-
back to execute orders in small- and mid-cap equities while
minimizing impact.
Optimally source in
low ADV names such as
small/mid-cap securities
Consider: BBO=12.50 12.60 and the stock is a small- or mid-cap. Liquidity is insufficient and trading costs are inevitable if the
implementation process is not optimal. Avoid impacting the supply/demand characteristics of the BBO by only accessing the
most probable dark pools and do not display my intentions in the public quote. Closely monitor the spread for caustic behavior
such as gaming, take appropriate action and reenter the market when conditions normalize. If liquidity improves alter the tac-
tics to participate with traded volume. Monitor trend and take action if liquidity we are absorbing appears to be impacting
price. I am aware that my order may not complete in its entirety.
Smart Order Execution Algorithms (Liquidity Sourcing)
Strategy U.S./Europe Function Objective Sample Scenario
Smart
VTrack
U.S.
Europe
Aggressive volume tracking algorithm driven by FAN.
When in-line with participation parameters, strategy
intelligently seeks to match public market volume by
participating in displayed and non-displayed markets.
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Intelligently trade up
to target volume
percentage
Consider: BBO = 50.25 50.27 where liquidity is of moderate concern. Buy 100,000 DEF @ 50.75 top and be 20% of the volume.
You can passively trade slightly ahead of the traded volume but not greater than 22%. Conversely dont fall behind less than
18% of the displayed volume. While trading in line simultaneously, I want to turn the Dark Switch on which will work the
entire balance of my order in all dark pools (Covert) and not count these executions toward my percent of volume calculation.
Arrival
Price
U.S.
Europe
Calculates optimal trade horizon to balance market impact
with price risk based on specified urgency level.
Performance is measured as follows: if stock has not
opened, the previous close is used.
If stock is open, the cross side of the market is used
(ask for buy, bid for sell). Powered by FAN technology
Minimize slippage (from
the arrival price) based
on specified urgency
level
Consider: BBO = 32.85 32.87. I want to trade this order with minimal dispersion from my arrival price (32.87) while striving to
maintain trading costs in balance. Buy 50,000 ABC @ MKT. If the price begins trending against my benchmark then increase the
trading rate. Conversely if the price begins trading at more favorable prices then tune down the trading rate and be more passive.
VWAP
U.S.
Europe
Participate proportionally with expected volume profile.
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Match VWAP over
specified time period
Consider: BBO = 22.48 22.50. The market hasnt opened and the indication is much lower related to a news announcement in a
highly correlated name. Buy 200,000 XYZ @ MKT. I believe the stock price will recover later on in the trading horizon. Therefore I
want to instill this bias by using the Tilt parameters and front-loading my share distribution relative to the volume curve.
TWAP
U.S.
Europe
Spreads executions evenly over designated time period.
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Track TWAP over
specified time period
Consider: BBO = 22.48 22.50. Buy 200,000 XYZ @ MKT. Volatility in this equity is unusually high today. I believe the most optimal
implementation strategy is to participate in a linear manner throughout the day. I want to use the Take and I Would Parameters,
so that if the stock price increases to 22.73, I can convert the order to FAN to Take it all at that price point. Similarly, if the price
decreases to 22.05, I can convert the order to FAN to buy it all at my I Would price.
Target
Close
U.S.
Europe
Calculates the optimal trade horizon striving to achieve an
execution outcome with minimal price dispersion from the
closing print.
Target closing price as
benchmark
Consider: Ive missed the cut-off time for a MOC order. My goal is to execute ahead of the final cross with minimal dispersion from
the closing print. Using previous days trading behavior intelligently determines the optimal interval and participation rate.
Benchmark & Participation Algorithms
Strategy U.S./Europe Function Objective Sample Scenario
10b-18 U.S.
Monitors trade quotes in real-time to ensure compliance
with time and price conditions for issuer stock repurchases
with the use of algorithms (VWAP, TWAP, Arrival Price,
Smart Vtrack)
Execute within the
safe-harbors provisions
Consider: Issuer stock repurchase order to buy 100,000. Certain conditions and parameters should be met related to both time
and quantity of actual executions to remain compliant under the safe harbor rules. Compliance logs are created, including last
sale and quote conditions at time each order is sent or modified.
Other Algorithms
1
Dark Switch Allows the user to choose to have the algorithms trade outside their default parameters when liquidity is available on non-displayed destinations.
2
Take and I Would Allows the user to override the default benchmarks and enter custom price levels to convert the algorithm into a time-sensitive FAN order.
For additional information:
U.S. Tel: +1.646.981.1199
Toll: 888.440.334
Europe. Tel: +44.20.7997.2123
algosupport@knight.com
For additional information:
U.S. Tel: +1.646.981.1199
Toll: 888.440.334
Europe. Tel: +44.20.7997.2123
algosupport@knight.com
EdgeTrade Algorithmic Suite
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Strategy U.S. Europe Limit/Market Max Vol %
Start.
(End) Time Style Tilt Aggression IOC
I Would
(Take)
Dark Switch
(Min Dark QTY)
On Open
(Close) Crosses 10b-18
FAN
Covert
SUMO
Oasis
Arrival Price

VWAP

TWAP

Smart VTrack

Target Close
10b-18
Parameter Settings
Aggression Levels (Settings) for FAN (Illustration represents a BUY Order)
Aggression Setting Order Type BID Mid-point ASK
Aggressive + MKT (LMT)

.......................................

Aggressive PEG-MKT

.......................................

Neutral PEG-MID

......................

Passive + NA

.

......................

Passive PEG-PRIME

.

[IOC only] Represents both Public and Dark venues.

[Post & IOC] Represents both Public and Dark venues.
[Post & IOC] Represents Public venues.
[Post & IOC] Represents Dark venues.
[Post only] Represents both Public and Dark venues.
Tilt Parameter Applicable for VWAP and TWAP
Style Setting Aggression Level
-5.0
Front-Loaded where -5 will complete most of the
order within the first quarter of TIF
0.0
Will trade in-line with historical VWAP/TWAP
throughout the entire TIF
5.0
Back-Loaded where 5 will complete most of
the order within the last quarter of TIF
Buy & Sell Illustration with Application
of Market Stop and I Would Instruction
Take and I Would allows the user
to pre-specify price thresholds that
instruct the algorithms to modify
its aggression level to complete
the order.
Take

Buy Order

I Would

(Target)

I Would
(Target)

Sell Order

Take
$110
$105
$100
$95
$90
Basic VWAP Front-Loaded Tilt

Each dimension (three arrows) depicts a sepa-
rate order, where each is parameterized with
an identical (in this example front-loaded dis-
tribution) Tilt and TIF. The goal of this chart is
to demonstrate the effect of an identical
Tilt/TIF on share distribution relative to the
benchmark (in this case VWAP).
VWAP Benchmark
Time Horizon
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January 2010 Knight Capital, Inc. All rights reserved.
Knight Direct LLC and Knight Equity Markets, L.P. are wholly owned subsidiaries of Knight Capital Group, Inc. and are members of FINRA and SIPC
To learn more abouit Knight Capital Group, Inc. (Nasdaq: NITE) go to www.knight.com
Style Parameter Applicable for Sumo and Arrival Price
Style Setting Aggression Level
1.0
Very Aggressive
0.0
More Aggressive
-1.0
Aggressive