Speedy New Traders Make Waves Far From Wall St. [HFT]

CNBC / NYTimes blog ^ | May 17, 2010 | Julie Creswell

[thouworm]

GetCo in Chicago

“They are probably the biggest market maker in the U.S. stock market,” said Justin Schack, a vice president at Rosenblatt Securities Inc.
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Since its founding a decade ago, the firm has risen to become one of the five biggest traders measured by volume....
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... often accounts for 10% to 20% of the daily trading volume of many U.S. stocks, the company has said, including highly traded names such as General Electric Co., Oracle Corp. and Google Inc.

Aug. 27, 2009

http://online.wsj.com/article/SB125133123046162191.html

[Oceander]

If you are not talking about frontrunning, how is this different from other auctions, let's say eBay?

With the spreads now down to the penny, if that's the highest price a "smaller investor" is willing to buy, why is it bad if that's the price that his order fills? Doesn't he have a choice to walk away from the trade as well?

A very good point, and one that is too often overlooked.



bumper sticker

[CutePuppy]

Thanks. They are private but are larger than many small public HFT/DAT firms, like Terra Nova. Also seem very responsible regarding leverage or defensive trading in very liquid large volume names or instruments, since they trade mostly with their own money.

..... Getco has increased its contact with the SEC and others as it seeks to influence policy decisions on matters such as rules governing options markets.

Getco's founders, former floor traders in Chicago's futures and options pits, say a lot of confusion surrounds the industry they helped pioneer.

"Electronic markets have been the best-performing parts of the financial markets" in the past few years, said Dan Tierney, a co-founder of the company with Stephen Schuler, in a rare interview. By contrast, many securities and derivatives traded over the counter, such as credit default swaps, malfunctioned amid the credit crisis, with devastating consequences. .....

One day last October, Getco juggled about two billion shares, representing more than 10% of the volume in U.S. equities, according to a person familiar with the firm.

Without high-frequency traders, Mr. Tierney says, the market's losses could have been much steeper. The Dow Jones Industrial Average plunged 14.1% that month.

All this has been profitable for Getco, which earned about $400 million in 2008, trading mostly with its own money, people familiar with its finances say. Getco, which stands for Global Electronic Trading Co., declines to comment on its profit. .....

At Getco, traders stare at enormous high-definition screens stacked to the ceiling that display trades in virtually every financial instrument traded electronically on exchanges. Large white boards, thick with scribbled formulas and intricate diagrams, line the walls of its expansive trading hub on the second floor of the office tower that houses the Chicago Board of Trade.

Unlike traditional Wall Street firms, the company holds relatively few securities by the time markets close for the day. Nor does it use much leverage, or borrowed money, to amplify the effects of its trades. .....

If the trade works, Getco will make money on that tiny spread. Sometimes they don't; the challenge then is to get out as quickly as possible. .....

Getco depends on the success of its proprietary complex algorithms to help it make money on the transactions more often than not. It also can pick up tiny rebates that some exchanges offer to firms willing to take the other side of trading orders. The company focuses on hiring top computer programmers and technicians, as well as traders.

Messrs. Tierney and Schuler founded Getco over a handshake in a small office at the Chicago Mercantile Exchange on a Friday afternoon in October 1999. .....

Their goal was to create an all-electronic market-making business. By 2001, Getco employed about 20 people and had branched into exchange-traded funds.

Around that time, stock exchanges switched to decimalization, pricing stocks in dollars and cents rather than dollars and fractions, a change that narrowed spreads and boosted the importance of swift trading to capture gains. .....

Today, Getco operates in electronic exchanges around the world. It has offices in New York and London and has about a dozen employees in Singapore, where it expects to expand soon.

A priority now is trading more on options exchanges. The company says regulations currently in place restrict the ability of options investors to get the best price. If options markets are more open to high-frequency traders, that will make the market more competitive, increase volumes and give investors better deals, it says.