Automated Trader Magazine Issue 04 January 2007
Latency has inevitably become a hot issue in the auto/algo trading world, with some of the more excitable marketing hyperbole already talking in sub-microseconds terms. So far much of the chat has focused on network latency – in general terms, how to minimise the time between sending an order to a trading venue and it getting there. The snag is that this now looks like a case of rapidly diminishing returns; once everybody has bought the same ultra fast connectivity and/or put their execution servers as close as possible to the venue, a point of equilibrium is reached where nobody has an advantage.
That point has not escaped some of the interviewees in our feature on colocation (page 40) who have appreciated that while network latency gains may be increasingly hard to find, there is still scope for improving internal application latency. That point has also not been lost on vendors such as RTS Group, who have made it a major focus for their RTD Tango product (Spotlight, page 62).
Another theme in this issue is Asia. For a while we’ve been noticing an easterly migration of experienced sellside AES personnel, so we thought we’d better take a look at what they were getting up to in our feature “Algo in Asia” (page 78). While the general sense that emerges is that Asia is still playing algorithmic catch up, there are encouraging signs also borne out in the Exchange Views (page 32) interview with David Stocken of the ASX.
After several years of frenetic innovation, a third theme we have been picking up from buyside readers is algorithmic reality – i.e. what is really required to get the job done? According to our My Machine (page 84) interviewee, Clive Williams, education is near the top of the list. In Clive’s view, if you don’t fully understand how an algorithm works then you shouldn’t be using it. To judge by the responses in the AT Round Table (page 50) the sellside seem to be increasingly aware of this and accept that showing the buyside how existing tools can be put to best use is perhaps more worthwhile than blinding them with yet more snazzy algos.
Finally, Chris Donnan’s Strategies article (page 16) touches on something of increasing importance in the auto/algo world – optimisation. As the number and complexity of models continue to increase, so does the problem of optimising those models. Chris gives a thoroughly pragmatic and accessible outline of some possible solutions.
Andy Webb - Editor Issue 04
- Leader: The Price of PrincipalCertainty comes at a premium in financial markets and especially where a capital commitment is required. But just how big should that premium be for principal quotes and what are the alternatives? Dr Paul Lynch managing partner of algorithmic trading specialists PE Lynch LLP explores the options.
- Strategies: Optimisation Algorithms for Automated TradingAutomation opens up the possibility of trading multiple models or the same/similar model with multiple parameter sets. However, that raises the question of how best to optimise those parameter sets. Chris Donnan, who works in equity derivatives trading technology at a top Wall Street firm, answers it.
- Case Study: Algo Pairs at InvestecInvestec Securities (UK) is a UK institutional equity house offering institutional services across research, sales, sales trading and risk trading. In September 2006, it announced that it had gone live with royalblue’s Fidessa Pairs and VWAP algorithmic trading modules. AT talks to Trevor Gatfield, head of IT for Investec Securities (UK) about the group’s use of the Fidessa Pairs module in its pairs trading activities.
- Exchange Views: ASX - Ramping Up For Algo/DMA TradingIn common with other exchanges around the globe, the ASX has seen algorithmic and automated trading fundamentally change the nature of its order flows. AT talks to David Stocken, Senior Product Manager, Equity Products at the ASX about how the exchange is responding to this fluid environment.
- Feature: Colocation - A Game Worth the Candle?Exchanges, networks and service providers are turning to the laws of physics in the race to reduce latency and win customers. But do colocation and proximity trading really offer substantial benefits worthy of the investment, or is it mainly a triumph of marketing over common sense?
- AT Round Table: Algorithmic Trading - Creating real value for the buysideAs algorithmic trading continues to mature, the buyside is becoming more demanding. Providers are now being judged on a more holistic basis than in the past, with an emphasis on their overall ability to add value. AT talks to five prominent sellside banks about some of the possible solutions to these new demands. With: - François Banneville, deputy head of global program trading, Société Générale Corporate & Investment Banking - Peter Sheridan, Head of European Algorithmic Trading, Goldman Sachs - Kevin Bourne, Global Head of Execution Services, HSBC - Matt Celebuski, senior managing director in E.A.S.T. division, Bear Stearns - Dave Conner, Head of US electronic Client Solutions Sales, JP Morgan
- Spotlight: RTD Tango - Cutting to the ChaseTools for trade automation have been around for several years. One of the later arrivals at the automation party is RTS Realtime Systems Group, which launched its RTD Tango automated/algorithmic modelling and trade execution platform last year. As AT discovers, there is evidently truth in the adage about learning from other's mistakes to avoid making your own.
- Feature: Jack Schwager - Making the gradeThe number of hedge funds using automated and algorithmic trading has risen exponentially in recent years. That has made it hard for such funds to stand out from each other when pitching to allocators. One such allocator is Jack Schwager, who in addition to an illustrious career on Wall Street and the authorship of numerous investment classics, is also the principal investment manager of the Market Wizards Funds, the flagship fund of hedge funds series of the Fortune Group. AT talked to Mr Schwager about his views on automated trading and some of the criteria he uses when selecting managers.
- Tech Forum: Data - The Exploding SupernovaWith: - Mark Palmer, general manager and vice president of Apama Products, a division of Progress Software - Dr John Bates, founder and vice president of Apama Products, a division of Progress Software - John Coulter, vice president of marketing and business development, Vhayu Technologies - Kirsti Suutari, global business manager for algorithmic trading in the enterprise business division at Reuters - Paul Geraghty, director of customer propositions for the Reuters Tick Capture Engine - Ary Khatchikian, president and CTO of Portware
- Feature: Algo in Asia - Slow Burn or Damp Squib?While adoption of algorithmic trading in Asia is not as advanced as in Europe or the US, there are some indications of intent already emerging. For instance, several major broker dealers have started relocating experienced advanced order execution personnel to the region with the intention of building their algorithmic client base. Will they soon be basking by a bonfire of activity or struggling with soggy matches? Heather Mclean finds out.
- Peek Ahead: DIY DisasterHow one fund house's attempt to build its own algos proved a rocky road to reality.
- My Machine: The AT Interview - Algo RealityInvestment management firm T. Rowe Price, headquartered in Baltimore, Maryland, has more than USD300bn under management. The company has a global presence and in common with other major asset managers uses execution algorithms in its various locations. AT talks to Clive Williams, head of European Equity Trading at T. Rowe Price’s London office about his desk’s experience with and expectations of algorithmic trading.
- Quantitative Approach with a Human TouchAs electronic trading continues to gain ground, one of the casualties has been the reduction of personal contact. While things like data, quantitative calculations, speed to market, etc, have become essential parts of this new trading frontier, the demand for the exchange of ideas and better understanding of the market place has never been greater. What are the tools available? How do they work? How can you get the best out of them?
- Building and maintaining an algorithmic trading toolAs the use of algorithmic trading tools has become more widespread, clients’ expectations have similarly increased. Owain Self of UBS highlights the important considerations when developing and supporting a credible algorithmic trading tool and what it takes to maintain that credibility in a constantly changing market.
- What's in Focus for 2007 Beyond MiFID and the ExchangesMiFID has been a key focus for many months now,given both the tactical and strategic impact it will have on the buy and sell-side,and market microstructure in particular. There is no doubt the MiFID themes play largely in our plans,but they are not the only things in focus for Goldman Sachs in 2007.