The small cap system is engineered for opportunistic trading: able to trade very fast when appropriate, but not interfere with price formation or get caught up trading at the "wrong" price. The result is substantially better shortfalls than algorithms.

"Pipeline's small cap strategy is different from algorithmic solutions. These algos are either not opportunistic, or they rely on a 'fair price' model to choose opportunities and therefore can backfire badly when the fair price model is wrong -- most spectacularly in the fall of 2008," said Henri Waelbroeck, Pipeline's Director of Research. "The basic idea is to rely on a fair price model when appropriate, but know when to pull back and let the market find the fair price."

Pipeline's unique small cap system harvests dark liquidity through several dark aggregators, and uses liquidity opportunists ready to "pounce" on value in the displayed markets. It incorporates large block fills as appropriate, and can leverage Pipeline's encrypted, patented buy-side OMS network to identify latent contra liquidity.

"For small cap names, liquidity tends to be clustered in time. If small fills add up to a high participation rate, our small cap system will avoid posting limit orders and will carefully control the participation rate, both in the small-order markets and in block markets. This type of trading can be accomplished without interfering with price formation, so the stock is free to move favorably," said Waelbroeck.

The Pipeline small cap execution management strategy is configured to the specifications of individual buy-side traders and has reduced implementation costs for a number of Pipeline's buy-side clients.

"Half the battle in building effective algorithmic trading systems is maintaining integrity throughout the process," said Tereck Fares, CFA, Chicago Equity Partners. "This means resisting the easy temptation to acquire market share by blindly interacting with ELPs, fast money or the firm's proprietary trading if that applies. In the long term, discriminating traders will naturally flock to systems that dynamically assess market conditions and react accordingly while minimizing impact. This is especially critical when trading blocks of small and mid cap names for which Pipeline is providing some innovative solutions."