Automated Trader Magazine Issue 17 Q2 2010
If you’ve ever shopped at a grocery store, you’ll know that barcodes aren’t new. The little square barcodes – QR codes – we’re using this month aren’t new either – they were developed in Japan in 1994 (more on that, and how to use them, on page 107). They’re handy little widgets, and as you might expect, there’s even an app to go with them (again, see page 107). So if that’s a smartphone in your pocket, and you want to see (for example) the full videotaped interview from which we’ve quoted just a couple of comments in an article, or perhaps to get straight to a piece of software we’ve reviewed, or even occasionally to make your own direct contact with an industry figure we’re profiling – scan the dots. They’re not everywhere this month, but from now on, the general principle is: if you see a QR code, you’ll know that there’s more to the page than just the printed content.
Oh, and if you’d like a practice shot, try the square on the left. In keeping with the general idea that these things are a value-add, you don’t just get a few words of welcome from – actually, me – you also get Andy Webb talking about his visit to the Tokyo Stock Exchange to discuss the new “arrowhead” low-latency electronic trading platform (page 28) and his review of RTS Tango Trader (page 83), plus some distinctly thought-provoking remarks from Martin Gymer (page 69) on what happens if you leave it to a head- hunter to recruit the talent you need to run your high-performance, low- latency, smarter order-routing, mission-critical, probably over-sensitive and possibly even neurotic automated trading kit. Headhunters may know about reading CVs, but they don’t know much about markets and machines.
And while we’re speaking of machines, don’t miss Larry Levy’s extended interview with Duncan MacInnes, CEO of Xenfin Capital on page 34. Nor indeed Barry Johnson’s enquiry into the practicalities of news analysis (page 20). If we could find an effective method of exploiting a wider range of “para- market” events – we’d have been busy making money while waiting for that ash cloud to disperse.
We had quite a debate about where to put the COVER STORY tag this month. There’s talk of latency reduction in just about every feature - from Andy’s piece on “arrowhead” to Bob Giffords on cloud computing. But I think we got it right in the end – turn to page 56 and judge for yourself.
Big issues justify a bigger issue, don’t you think?
Have a good – extended – read.
- Lab in a box
In London, in late April 2010, in the bleak but soon-to-be-Olympic surroundings of the Docklands, an experiment took place that could significantly alter our understanding of how humans and machines interact in a trading environment. Six veteran traders and two scientists met in a small room above a trade show to re-enact IBM’s 2001 contest between human traders and adaptive trading technologies. But that was not all. The scientists were also planning to test something else on the human traders involved. Something new... John Howard, Automated Trader’s CEO, was one of those traders. Here, he tells his story.
- Trade all about it
Headline news is just potentially tradeable data delivered in a spectacularly inconvenient form. You can get it easily enough, but the big question is whether you can use it effectively. Barry Johnson discusses the evolution and practical application of news-analysis techniques to algo trading.
- Bullseye! Tokyo Stock Exchange hits the mark with "arrowhead"
Throughout much of the past year Automated Trader readers have been in frequent contact with the editorial team with questions about the Tokyo Stock Exchange’s forthcoming “arrowhead” trading platform. The platform went live at the beginning of 2010, so we recently seized the opportunity to catch up with Yuichiro Yamamoto, Manager of the exchange’s IT Development Department, shortly after “arrowhead” completed its first quarter of live trading. Automated Trader’s Founder, Andy Webb, spoke to Mr Yamamoto about “arrowhead” as well as the exchange’s philosophy regarding automated trading and its future technology plans.
- The Automated Trader Interview
You go live with your own FX fund in January 2009, and by the year end in January 2010, you’re up 33%. If you’ve got a track record that also includes starting out in model development while still at school, then running an IT company before selling it to go into electronic trading and then high-speed algorithmic FX arbitrage, that makes you interesting. Larry Levy went to meet Duncan MacInnes, CEO and head of trading at Xenfin Capital.
- Putting the e in audit
There’s more to MiFID than just putting a best- execution policy on paper. As European trading gets more complex and European regulators demand greater transparency, what role could automation play in compliance? Claudia Coleman spoke to Wolfgang Fabisch, CEO of b-next Group.
- Recent Regulatory Initiatives Affecting High Frequency Trading
High frequency trading (HFT) has gained the attention of U.S. and European regulators. Both the U.S. Securities and Exchange Commission (SEC) and the EU Committee of European Securities Regulators (CESR) have recently announced initiatives that could greatly affect HFT and the market structure for equity securities. While the U.S. Commodity Futures Trading Commission (CFTC) has not yet announced a similar initiative, the Commission of the European Communities (EC Commission) previously announced a similar review of the derivatives markets, and it can be expected that the CFTC will, at some point, join in the action.
- The show must go on!
It was fun, actually, Trade Tech this year. More volcanic eruptions than usual, and perhaps fewer people than Paris 2009 – although the official count made it “the largest gathering of equities professionals in the ten-year history of TradeTech”. But a lot of connections were made, follow-up meetings arranged, and key issues addressed, both in the formal sessions and on the exhibition floor. Latency was the biggest issue discussed but not the only one: when we weren’t talking about those last few micro-seconds, we were discussing: effective data delivery and usage; smart- and smarter-order routing; best execution; market surveillance; post-trade economics; clearing – and whether we had enough room in the magazine for all those launches. Automated Trader’s Editor, William Essex, reviews the show that so nearly didn’t happen.
- Commodities - the Ultimate Hedge
Given the roller coaster ride of financial markets and the growing volatility of exchange rates, investors have been searching for an ultimate store of value. In recent years many have looked to commodities, and there has even been a proposal to create a global currency, known as the Terra, tied to a basket of physical commodities1. This search for long-term value has led to its own dynamics. Studies have shown for example that commodity futures are negatively correlated with equity and bond returns, while having a similar risk premium to equities. At the same time they are positively correlated with inflation and even sudden, unexpected price shifts2. So how then have the commodity markets fared in the crisis? Bob Giffords investigates.
- Hiring Mr Wrong
Automation has obviously changed capital markets dramatically, but one area it has had more impact than most is FX options. With run of the mill market making con- ducted automatically by pricing engines, the trader skills required on an FX options desk bear little resemblance to those needed just a few years ago. Martin Gymer, CEO of FX option recruitment specialist Marshall Whitney, itemises those skills and the best way to evaluate them.
- Alpha Grabber
One of the realities of electronic markets is that alpha opportunities are often transitory; a profitable market inefficiency is only profitable if you can exploit it before the competition. So if you want to grab that alpha before everyone else does, you need to be able to build, test and deploy your new trading models before they can. Gary Stone, Director of Trading Research and Strategy at Bloomberg Tradebook, maps out the fast lane to model development and deployment.
- Trading Hubs Reach for the Clouds
The e-trading landscape is being radically transformed by two irresistible forces: proximity trading and cloud computing. Together they create rich opportunities for e-services providers. So what are the drivers and how can firms stay ahead of the curve?
- Synergic Trading
We last looked at RTS’s RTD Tango in our Q1 2007 issue in its Tango Client guise. Since then, RTS have made a number of changes to Tango, with one of the most significant being the integration of the Tango Client’s automated trading capabilities with its new Tango Trader product. Automated Trader’s Founder, Andy Webb, and his team of trusty tyre-kickers take this hybrid muscle car for a spin round the block.
- A Yes Vote for HFT!
Automated Trader recently hosted two global webinars looking at the issues around high frequency trading from both Eastern and Western perspectives. Over 1100 people registered to listen to experienced practitioners assess the state of the art. Webinar moderator Bob Giffords shares his observations and conclusions, and if you missed the live webinars, you can listen to the recordings of both events
- Low Latency Network Expertise
Just how much does the firm pitching your connectivity requirements really know about the nuts and bolts of running a superfast and robust network? And what investment are they making in researching the next generation of network technology? Joe Hilt, VP of Sales North America, and Fergus Innes, VP of Sales Europe, at Hibernia Atlantic, outline some of the areas where if your provider lacks expertise - you will be paying the price.
The ever-increasing emphasis in financial markets on reducing latency while expanding capacity means that ground-level expertise is at a premium. Sales personnel may claim fantastic performance from carefully, cherry-picked segments of the network they lease (of which they have zero technical understanding) but how does that really play out when your trades hit “their” fibre?
Owain Self, Head of Algorithmic Trading, Americas and EMEA at UBS, outlines the use of a liquidity seeking algo to acquire a substantial position in Aviva on a day when the stock went ex-dividend.
Alphability are Automated Trader’s proprietary tradability metrics. They are environmental statistics intended to assist those building trading models/systems in determining which markets and timeframes are most favourably responsive to which generic types of model. For more information on Alphability, please see page 56 of the Q3 2007 edition of Automated Trader or visit our Alphability page
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