Bank of America offers new ETF algo tool

Buying and selling exchange-traded funds at the institutional level isn't always a straighforward exercise, especially in less liquid ETFs. A large order often requires a certain, high-touch savvy, calling on traders to display their skills with futures and the individual stocks covered by the ETF.

Bank of America (NYSE: BAC) has just launched a new algorithmic product, called ETF-aX, that allows buy-side clients to electronically work futures and individual stocks to fulfill ETF orders. In a sense, the tool creates ETF shares out of component parts to create liquidity.

The bank describes it this way: "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 tool, which embodies an approach that Bank of America already uses on its ETF desk, essentially cuts out the human middleman. According to Bloomberg, the bank expects more than a third of its electronic clients will adopt the algorithm. But this doesn't spell the end of the road for ETF traders. As more specific ETFs hit the market, the need for high touch services will only increase for large, complex orders.

For more:
- here's the article 
- here's the release

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