Automated Trader Magazine Issue 02 July 2006
One of the problems in financial publishing is striking a balance between comprehensibility and the cutting edge. Some magazines prefer to stick with the first and just publish “trend” articles – asking an assortment of participants for their views on the most obvious industry trends. Others, usually with an academic bias, go to the other extreme and publish the latest and best research in a particular field – but complete with all the mathematical hieroglyphics.
The problem with the former approach is that it doesn’t tell you much you don’t already know. If you’re a professional in the auto/algo business and a trend is already hot – you’ll know about it. The snag with the latter approach is that it may tell you plenty you don’t know about the latest and greatest financial modelling techniques, but in language that is incomprehensible. Quants may lap up pages of equations and econometric terminology, but what about the rest of us?
As you might expect, Automated Trader takes a different approach. One of our editorial objectives is to deliver this sort of top flight research, but written in a manner that is accessible to the business reader. “New Concepts in Cost and Impact Modelling” in this issue is a great example. Dan diBartolomeo’s research involves some ferocious mathematics, but Dan was kind enough to give up his time assisting our writer so we could explain it all in layman’s language.
That brings me to another editorial objective. At first glance AT looks like a selection of “contributed articles” – it isn’t. Contributed articles have a reputation for sometimes verging on advertorial and being hawked around multiple magazines. Not in AT. The vast majority of AT articles are written in-house after interviewing the contributor concerned. This editorial model gives AT access to otherwise unavailable material from industry professionals who have huge expertise but no time.
Finally, where we cover industry trends – we’re looking to spot them before the herd. Read much about the effect of auto/algo trading on hedge fund back offices recently? Try page 62.
Andy Webb - Editor Issue 02
- The buyside trader - empowered or extinct?The introduction of Reg NMS next year will further compound other changes, such as decimalisation, that have transformed the equity market in recent years. Joe Wald, CEO of EdgeTrade Inc., explains how traders need to evolve and respond to meet this challenge if they are to remain relevant in the new environment.
- Strategies: Building a Better Bear TrapOne of the most critical elements in algorithmic trading lies in accurately modelling trading costs, yet this still remains a rather inexact science. While certain cost elements are relatively stable and/or easy to predict, others are not. As a result, models for estimating trading costs have tended to be reasonably predictive when viewed across a very large sample of trades, but decidedly indifferent performers on individual ones. This has in turn made the task of minimising these costs through the selection, tuning and scheduling of appropriate execution algorithms difficult. Dan diBartolomeo, president of Northfield Information Services, discusses the current limitations and suggests some additional elements that can be used to improve forecasting of trading costs and trade scheduling.
- Case Study: ABP - à la carte algoWith an invested capital of 190bn euros, Stichting Pensioenfonds ABP - the pension fund for employees in the service of the Dutch government and educational sector - is the second largest pension fund in the world. The fund has been scaling up its equity exposure in recent years, from 14% of assets in 1995, to more than 30% today. AT talks to Juan-Carlos Rhodes, senior trader at ABP, about how the organisation is making use of algorithmic and DMA technology in its equity trading.
- Exchange Views: ISE - Automation InspirationIn April of this year, the International Securities Exchange announced that it would be entering the equities market through the launch of the ISE Stock Exchange. AT talks to David Krell, President and Chief Executive Officer of the ISE about this initiative and how it will fit with the exchange’s existing automated trading activity in stock options.
- Technology Workshop: Java - Your High-Frequency FriendAn article in the April issue of AT (“You’re using what?!”) questioned the suitability of Java for high frequency automated trading. Matt Schruben, Principal Consultant, Random Walk Computing and Jim Levey, Director of Marketing, Random Walk Computing provide a different perspective.
- AT Round Table: Pre-trade analytics - expectations and realityPre-trade analytics have become an integral part of the workflow for algorithmic traders. We asked four major sellside banks for their views on some of the current and emerging themes in analytics. With: - Chris Biscoe, Head of US Ecommerce, Barclays Capital - Mike Duff, executive director, UBS - Andrew Freyre-Sanders, Head of Algorithmic Trading for EMEA and Asia, JP Morgan - Timothy Reilly, Co-Head of Alternative Execution at Citibank, Citigroup Global Equities
- Strategies: Waiting for the IcebergAlgorithmic trading has radically changed trading patterns in capital markets. Transaction volumes have increased and in the equities markets in particular, individual transaction sizes have plummeted. Debbie Williams, Group Vice President of the Capital Markets and Risk Management Practices at Financial Insights examines the implications of this for risk management and how market participants are (or aren’t) responding to the challenge.
- Hedge Funds and Multi Asset Algorithmic Trading - Perfect Partners?The exponential growth of the hedge fund sector has been a major feature of capital markets over the past few years. Another more recent hot topic has been algorithmic trading across multiple asset classes. Matt Simon, Analyst at the TABB Group considers whether a union between the two could be a marriage made in heaven.
- FPGA's - Parallel Perfection?FPGAs (Field Programmable Gate Arrays) may not be new technology, but as the data crunching race in automated/algorithmic trading continues to intensify, could they be an idea whose time has finally come? AT talks to Alistair MacArthur, Senior Research Engineer at Celoxica, who discusses current FPGA technology and outlines its potential for tasks such as parsing algorithmic news feeds.
- The Boys from BalchugDmitry Bourtov runs the US-based hedge fund Solaris, as well as heading a group at the Moscow offices of data vendor CQG that combines the activities of a quant shop and a specialist financial software developer. Bourtov talks to AT about the process by which he and his team design and manage a fleet of automated trading models across hundreds of markets around the globe.
- Hedge Fund Back Offices - Sinking or Swimming in the Algo Flood?Hedge funds have been a major factor in the growth of algorithmic trading, but how are they and their prime brokers responding to the impact that algorithmic and automated trading have had on the back office?