Automated Trader Magazine Issue 33 Q2 2014
Mahatma Gandhi, one can safely say, would probably not have been much of a fan of high frequency trading. After all, this was the man who famously said: “There is more to life than increasing its speed.” But the need for speed has been a feature of markets since they first began, and regardless of whether you’re thinking in terms of days or nanoseconds, no one wants unnecessary latency. So at a time when some in the market have been talking about how the so-called “race to zero” is a mug’s game, we decided it was time to take stock.
In this Q2/Q3 edition, we look at the latency theme from two perspectives. In ‘A question of control’ (page 20), we examine the challenge of effective pre-trade risk controls. After so many high-profile trading mishaps, this has been a massive concern for the industry. But how do you balance safety with swiftness?
In ‘A question of speed’ (page 28), Anna Reitman looks at demand for low latency tools and systems and finds that regardless of the pressures, there are still plenty out there who will pay top-dollar to shave a few slivers of a second off their round trips.
In keeping with the low latency issue, we examine the trading scene in South Africa (page 36), where the stock exchange has begun offering colocation. Sophie Lewisohn speaks to the exchange, some of the local traders and a range of others to investigate the implications for the market.
Another issue where we felt it was time to take stock: transaction reporting. More than a year has passed since the US began requiring reporting of swap transactions, and Europe has now followed suit with its own requirements under EMIR. So did the US experience make a difference for Europe? Rochelle Toplensky spoke to a range of regulation experts to find out (page 46).
First Person (page 12), our regular discussion with a small buy-side firm, features Aaron Smith, the head of Pecora Capital. In addition to learning about the history of Ferdinand Pecora, we gain insight into Smith’s approach to going up against far bigger players in the forex market.
In Me and My Machine (page 42), we hear from Scott Atwell of American Century Investments. Atwell has been closely involved with FIX Trading Community on improving post-trade processes.
In Software Review (page 52), AT Founder Andy Webb and the Wrecking Crew check out the Agora trading software libraries, which are meant to bridge the gap between low-level data and brokerage APIs and high-level modelling tools.
Finally, Peek Ahead looks at the ‘Flash Boys’ affair. You’ve heard about the book by Michael Lewis. Are you ready for the movie?
- Ferdinand's Legacy - The Alpine adventures of Pecora CapitalIn the 1930s, an Italian immigrant-made-good named Ferdinand Pecora went up against some very powerful financial institutions. Having battled against the odds to obtain a law degree, he eventually became counsel to a US Senate committee, where he took on the most famous bankers of the day -- and came out on top. More than 80 years later, Aaron Smith was so inspired by the manís rags-to-reform story he named his fund Pecora Capital. From his Zurich office, he tells Adam Cox how he aims to emulate the firmís namesake using systematic trading techniques to duke it out against the big players in the FX market.
- A Question of Control - Pre Trade RiskIn striking a balance between speed and safety, firms that have direct market access must confront a daunting set of challenges. In the aftermath of the Knight Capital trading disaster, there is also increasing talk of regulators deciding for those firms what's appropriate. Adam Cox reports on how the industry is re-evaluating pre-trade risk controls.
- A Question of Speed - The race to zero still attracts many entrantsRegulatory fear, fierce competition, rising costs - a host of arguments have been made for why the race to zero is a race not worth entering. Yet, technology vendors are still reporting demand for anything shaving off a microsecond here or there. Anna Reitman talks to the competitors staying in this race about keeping ahead of the curve.
- Anchors Away! How Johannesburg switched to the fast lane and what it meansSophie Lewisohn talks to the local exchange, market participants and other industry players to find out what a new co-location centre means for the South African market. Will it herald an influx of low-latency traders, new strategies and more liquidity? Is this market set to leap ahead in springbok-like fashion?
- Post-Trade Prosperity - One buy-side firm's experience FIXing its trade confirmation processWhen many people think of Kansas, they tend to picture flat, rural landscapes and farmers -- in other words, hardly the sort of place you'd expect to find financial pioneers who are looking to change the nature of international trading processes. Scott Atwell, who looks after trading and connectivity for American Century Investments in Kansas City, tells Automated Trader's Adam Cox about the work he and other buy-side firms have been doing on post-trade processes and the benefits automation can bring.
- The Paper Chase - Implications of a tough approach to trade transparencyThe US had paved the way with the start of swaps market reporting as called for under Dodd-Frank. Yet even with the benefit of that experience, the introduction of OTC derivatives reporting in Europe is proving to be a formidable test for trading firms and for the regulators themselves. Rochelle Toplensky reports.
- High Frequency Trading, Done QuicklyThe Agora trading software libraries, by Energeia Associates Ltd, promise to bridge the gaps across low-level data, brokerage APIs and high-level modelling tools. If successful, this would spare higher-frequency traders the labour of dealing with data processing, order management and logging, freeing them up to focus on strategy and model performance instead. Andy Webb, Automated Trader's Founder, and the Wrecking Crew took a look at an alpha version of Agora to check if it does what it says on the tin.
- Big screens and little screensMost high frequency traders probably don't know the name Scott Rudin, but perhaps they should. In Hollywood, Rudin is a very big deal. According to a flurry of press reports, Rudin and Sony Pictures have been looking to acquire the rights to 'Flash Boys' by Michael Lewis.