Model-Free Passive Execution via Order-Level Shadowing

Vincent Maciejewski

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Abstract: Automated execution algorithms are organized into schedule-based and liquidity-seeking families. This paper concerns the first, whose members -- Time-Weighted Average Price (TWAP), Volume-Weighted Average Price (VWAP), Percentage of Volume (POV) and Implementation Shortfall -- are all model-based: each derives its decisions from an explicit model, forecast, schedule or control rule. We introduce Shadow-PPOV, a passive POV whose order-placement rate is set from observed order flow rather than from traded volume. Placing a passive order to fill efficiently conventionally involves an order-book model and a fill prediction. Shadow-PPOV replaces that prediction with tracking: on observing a third-party add, it may transmit its own limit order at the same price on the same venue, recording a single association between the observed order's exchange identifier and its own. Cancellation is then identifier-driven -- the shadow is withdrawn when the order it follows ends, at once on a cancel and after a brief grace window on a trade. The placement decision is thus model-free: price and venue are read off the observed order. Model-free is not information-free. Shadow-PPOV reads every order-book message and places only where a participant has just committed capital, while computing nothing from what it reads. Information is inherited from the flow rather than derived from a model. We evaluate Shadow-PPOV on a full calendar year of replayed Chicago Mercantile Exchange (CME) ES futures in a deterministic market-replay simulator, reporting its slippage and latency sensitivity and comparing it against the aggressive equivalent POV. We propose it as a model-free benchmark for passive-order placement, against which a predictive placement model can be scored. The algorithm and the order-book simulator are implemented in the open-source kaspar-hft project.

Date: 2026-09
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