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Teza Technologies to withdraw from prop trading arena

First Published 10th November 2016

Firm wants to transform into hedge fund.

Teza Technologies, the Chicago-based high-frequency trading firm founded by Misha Malyshev, is planning to re-invent itself as a hedge fund with a quantitative slant. The firm is pursuing this change in strategy in order to be able to take on additional risk capital, presumably a sign that it wants to increase the holding periods of its positions. The hedge fund part of its business, Teza Capital Management, was started two years ago in October 2014 and already contains a sizeable 1.5 billion USD.

A capital pool of this size certainly allows the firm to harvest less certain alpha sources which have more volatility. That type of trading obviously requires more patience to ride out as opposed to the fairly consistent revenue streams earned at higher frequencies. Asked about this, the firm's founder confirmed that he saw the future of the firm in the asset management industry.

According to news sources, Teza's net trading income has been shrinking over the years, in line with the general HFT industry trend of declining profitability. At some point the firm had an annual net trading income of 250 million USD. Supposedly 2016 was more or less break-even for the firm after making 80 million USD the year before.

With a staff of about 100 people and a far flung infrastructure to support its high-frequency business, the cost pressure seems to be taking a toll. At one stage the firm even operated its own microwave network to beat competitors to the exchange matching engines.