A B L E | M A R K E T S
Market Microstructure Predictive Analytics
AbleMarkets.com
Volume: 2015 No.4
April 2015 Market Microstructure Analysis
Latest research from
AbleMarkets shows that, on
average, and in the absence
of all additional explanatory
variables, aggressive HFT
alone can explain as much as
30%-40% of implied volatility
variation on a T+1 basis within a time series for any one
security. These successful
predictions have significant
economic consequences: an
ability to accurately predict
future implied volatility and a
priori enter into profitable
trading and risk management
positions. The T+1 predictive
power of the aggressive HFT,
however, can vary significantly from one security to the
next. Accurate predictions of
implied vol significantly improve numerous vol trading,
hedging and even collateral
pricing applications. In collateral pricing, a debt can be
viewed as an option on equity
and priced as such. Highaccuracy predictions of implied vol result in highly accurate collateral pricing results.
Implied vol for MMM at t+1
AbleMarkets Aggressive HFT Index predicts T+1 volatility
Special points of interest:
45%
35%

The risk of information
security

The risks presented by
runaway algorithms and
other malfunctioning
technology

The risks imposed by aggressive HFT

The risks of spoofing and
other market manipulation

AbleMarkets Aggressive HFT
Index helps option traders,
risk managers, collateral
managers and hedgers to
predict next day’s implied
volatility with 99% statistical
confidence.

Microstructure risks are numerous, systemic, and successfully modeled by
AbleMarkets

AbleMarkets tools are available to market regulators
15%
5%
-5% 20%
30%
40%
Aggressive HFT in MMM at t
Irene Aldridge highlights real-time market microstructure
risks at the Princeton Quant Trading Conference
Irene Aldridge of ABLE Alpha
Trading, LTD., and ABLE Markets discussed various aspects
of real-time risk at the Princeton Quant Trading conference
held at Princeton University
on April 4, 2015. Among the
key risks highlighted by Aldridge were:

25%
T+1 Implied volatility for MMM
(y-axis) vs. previous day’s
AbleMarkets Aggressive HFT
Index over 2013-2015 period.
For full report, please email
steve@ablemarkets.com
April 2015
veloping news

The risks of activity in
“related markets,” such
as options and other derivatives, and the impact
on the core markets.

The risks of flash crashes
To request a copy of the
presentation, please email
The risks of unanticipated steve@ablemarkets.com or
call (646) 580-4949.
Internet activity and de-
Upcoming Events
Aldridge to speak at the Global
Annual Meeting of CFA Society in
Frankfurt, Germany
 Date: April 28, 2015
 Please join Irene Aldridge in
discussing the global trends
in market microstructure,
and the associated risks.
Join Irene Aldridge at the Euromoney Bond Trading Forum in
New York
 Dates: May 20 & 21, 2015
 Aldridge will be discussing
high-frequency trading in
the bond markets.
Isn’t it time for regulators to deploy real-time surveillance tools?
The new revelations surrounding the Flash Crash of
May 6, 2010, once again
brought to light an undeniable fact: U.S. regulators desperately need to boost their
real-time surveillance capabilities. Nearly five years has
elapsed between the time the
London-based Navinder Singh
Sarao, allegedly influenced
the Flash Crash and the government identification of this
event! Gone are the days
when market issues could be
analyzed by a team watching
for on-screen images of mar-
ket events. Regulatory agencies are ill-equipped to handle real-time issues in a timely manner. However, market
solutions, such as AbleMarkets.com suite of real-time
products are designed to spot
market microstructure issues,
such as runaway algorithms,
predisposition to flash crashes, and presence of aggressive high-frequency traders
(HFTs) in real time. These
tools have been built and
extensively tested over the
past decade, and have been
customer feedback and experience. AbleMarkets tools successfully track the participation of
aggressive HFT, institutional inThe real-time surveillance
vestors, detect runaway algos
tools from AbleMarkets, on
and other systemic malfunctions,
the other hand, have been
designed and refined over the such as the one that caused
Knight Capital to lose $440 milpast eight years with end
consumers in mind. Original- lion in just 45 minutes, detect
ly developed and deployed as flash-crash prone markets and
cutting-edge tools to address many other aspects of today’s
private sector concerns about market microstructure.
the health of financial marTo learn more, please email stekets, the tools have been
ve@ablemarkets.com or call
refined over successive gen(646) 580-4949.
erations of software and
hardware, taking into account
available to the government
for the asking.
A B L E | M A R K E T S
AbleMarkets is a cutting-edge
market microstructure predictive
analytics company. Founded in
2007, AbleMarkets focusses on
quantitative measures in market
microstructure.
A division of Able Alpha Trading, LTD.
http://www.AbleMarkets.com
http://www.AbleAlpha.com
Phone: 646-580-4949
E-mail: Steve@AbleMarkets.com
With advanced iterative model
development and groundbreaking
research, AbleMarkets stays
ahead of the markets and delivers real-time, intraday and endof-day market analytics for:
Market Microstructure
Predictive Analytics
Market microstructure demos online:
AbleMarkets.com

Execution Optimization

Portfolio Management

Risk Management

Active Directional Trading

Pre-trade and Post-trade optimization

Forensic Market Analysis

Regulatory Impact Analysis
Our Products
I. For low-frequency long-only
and long-short portfolio managers and risk managers
(Daily turnover or lower frequency trading):
1)
2)
3)
4)
Long-only equity portfolio optimization based on AbleMarkets Aggressive HFT Index can deliver an additional 10% return and Sharpe Ratio
improvement of 0.3 to existing portfolio optimization strategies.
AbleMarkets Flash Crash Index detects microstructure abnormalities
and highly probable downward volatility conditions a day ahead, allowing portfolio managers to hedge their
exposure.
AbleMarkets Internet Chatter Index
aggregates Internet conversation
statistics for equities that are highly
predictive of impending stock movements.
AbleMarkets Institutional Activity
Index reports net institutional flows
in financial instruments, predicting
returns and volatility.
II. For execution traders and intraday portfolio managers
(intraday turnover):
1)
2)
3)
4)
AbleMarkets Aggressive HFT Index
predicts short-term market movements, helping optimize execution as
well as directional trading in any
electronically-traded instrument.
AbleMarkets Abnormal Trading Index detects runaway algorithms in
real-time, potentially saving millions
of dollars in erroneous trades as well
as exposures to broken algorithms in
the open markets.
AbleMarkets Internet Chatter Index
compiles intraday Internet conversation statistics for equities that are
highly predictive of impending stock
movements.
AbleMarkets Institutional Activity
Index reports real-time institutional
flows in financial instruments, predicting returns and volatility.
III. For corporate treasurers and
investor relations professionals:
AbleMarkets suite of products helps diagnose market microstructure health of the
corporate issue and help establish valuation by explaining and helping to hedge
microstructure risks. Via custom consulting, AbleMarkets team can recommend
corrective actions to reduce negative
microstructure issues potentially impacting perceptions of institutional investors
via tools like dividend policies and hedging.
For more information, please contact:
Steve Krawicw [kro:sew]
Steve@AbleMarkets.com
646-580-4949