The Wall Street Journal has a report out today looking at the inner-workings of a high frequency trading firm—Modern Markets Initiative member Hudson River Trading.
The report examines the dynamic, entrepreneurial approach of its founders, who have challenged the “old-school Wall Street power brokers and market-makers” and instead promoted technologies and a modern marketplace that provides today’s investors with “cheaper and quicker trading.”
Here are some excerpts, along with a link to the entire Wall Street Journal report:
Inside Hudson River, the Firm That Does 5% of All Stock Trading
The Wall Street Journal – October 15, 2014
Now one of the firms named in Michael Lewis’s book, “Flash Boys,” wants to set the record straight. Jason Carroll, a 37-year-old computer scientist, and four others founded Hudson River Trading LLC in Lower Manhattan in 2002. Mr. Carroll and Adam Nunes, the firm’s head of business development, spoke at length with the Wall Street Journal about Hudson River Trading and its role in the marketplace.
The surprising thing about the firm is that even as it has grown it still doesn’t fit many of the conceptions about high-frequency trading.
Nearly all descriptions of such firms say they close flat every day, meaning they sell all their holdings to reduce risk. Hudson River Trading holds a significant amount of its trading capital overnight – about 25%, according to the firm.
Most descriptions say such firms primarily trade in and out of stocks in milliseconds. Hudson River Trading says their average holding time for a security is about five minutes.
The firm also does less than 1% of its trading in dark pools, the lightly regulated private trading venues under scrutiny from regulators, including New York Attorney General Eric Schneiderman.
Speed matters, but is not their primary concern, Messrs. Carroll and Nunes said. And they are advocates of simpler markets with fewer order types and exchanges (as opposed to thriving on greater complexity).
“We [also] don’t try to race ahead of an institution’s order or sniff out whether someone is trying to place an order here or there,” said Mr. Nunes, a former Nasdaq OMX Group Inc. executive.
In their minds, they are making the markets more efficient through their trading.
Instead of being the shadowy firms stealing pennies from everyday investors, they see themselves as scientists and computer experts who used technology to replace the old-school Wall Street power brokers and market-makers. The result, they say, is cheaper and quicker trading.
Read the full article here.