This new ETF-specific 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."

Upon receiving a client's order to trade an ETF, the engine analyzes inside pricing and depth of book across the ETF, stock, and futures markets to compile a picture of available liquidity. Once ETF-aX determines the optimal way to transact, balancing a desire for the best pricing against a need to capture the most liquidity, slices are simultaneously sent out to all market centers. A composite ETF price is assembled 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."