Automated Trader Magazine Issue 26 Q3 2012
Automated Trader readers are a demanding bunch (we wouldn’t have you any other way), so we’re always looking to give you that extra bit of value. That’s why, in this issue, we’ve significantly increased the number of in-depth articles. Many of these articles also include additional content only available at www.automatedtrader.net. Just follow the links in the articles to find the extra content.
AT readers also don’t tend to miss much, so it won’t take you long to notice that we have two major themes running through this issue – India and regulation.
India might have lagged western financial markets for some time, but it’s catching up fast. If you’re not trading there yet, we think there’s a good chance that you soon will be. Mary-Ellen Barker, who spoke to players inside and outside of India to tap their views, learns how this enormous, fast-changing country has embraced algorithmic trading and assesses what kind of growth we might expect. Read all about it on page 14.
We also have interviews that probe the rapidly expanding asset management scene in India – from the modestly sized Sharekhan Limited in First Person on page 8 to the Asian fund giant Eastspring in Me and My Machine on page 24. To top it off, on page 30, we hear from Hirander Misra on how an intense battle among Indian exchanges could evolve.
On the regulatory side, many of you might be wondering whether you’ll still have a viable business model once the slew of possible regulatory changes work their way through their bureaucratic process. The big concern is over the consequences that might result from the decisions being made under what’s been referred to as a “high frequency regulation” regime. So, we begin on page 38 by looking at the Foresight project, a British government-sponsored attempt to shine the bright light of objective research into global markets. But is it too late?
Meanwhile, on page 44, Bob Giffords discovers what the market thinks might happen if any of the ideas aimed at reining in high frequency trading actually do become law. We finish our regulatory tour on page 52 with a look at the viability of efforts to regulate the colossal OTC market.
Andy Webb gets back to more familiar territory with a look at what’s happening at the CME in Exchange Views on page 58. Anatomy of an Algo on page 68 illustrates the use of a multi-asset algo, and on page 77 the Wrecking Crew set about KaiTrade’s K2RTDKit.
It’s a bumper issue and we hope you all enjoy reading it as much as we enjoyed researching and writing it.
- Pathway to PerformanceWhile deploying a trading model as quickly and efficiently as possible is a priority for any trader, a major obstacle to this at present is the constraint on IT resources. Particularly for traders looking to automate their trading but lacking programming skills, this is a major hurdle. But as Gary Stone, Chief Strategy Officer at Bloomberg Tradebook explains, there is another way.
- CME Group: From Mainframe to HFTIn nearly thirty years at CME Group, COO Bryan Durkin has seen numerous technological changes. In this issue's Exchange Views, Bryan tracks some of those changes in the context of the exchange's expansion and shifts in the trading landscape.
- Cruisin' the FreewayThose looking to employ more sophisticated trading strategies, involving multiple instances of multiple strategies in a co-located environment at minimum latency, face two unattractive alternatives. Off the shelf solutions are extremely costly, while building the same functionality in house is enormously time consuming. Fortunately, as Hazem Dawani, President & CEO of OptionsCity explains, these barriers need not be as insuperable as they appear.
- Sharekhan shows how a small Indian fund can reap big returnsIn this edition of Automated Trader's regular look at smaller players in the automated trading space, Andy Webb talks to Rohit Srivastava in Mumbai, whose firm Sharekhan Limited is the only long-short fund in India. The firm's trend-following tactics have helped it generate a return of 146 percent for the $20 million under management during the six years from early 2006.
- Evolutions and revolutions: how MTS keeps up with fast-changing technologyHow does an electronic market make sound decisions when technology is changing at such a rapid pace? What are the trade-offs between price and performance? Andy Webb spends some time with MTS CTO Fabrizio Cazzulini and Fabrizio Testa, head of product development, to get the answers.
- Sub-second trading on the Subcontinent. Just how fast will algo trading in India take off?Large chunks of cash equities and derivatives trading in India are already algorithmic and the ingredients are in place for more rapid growth. Even the regulatory environment seems favourable. Mary-Ellen Barker spoke to players inside and outside of India to hear what's fuelling the trend and what they see in store.
- India by the numbers: a guide to its marketsThe world's most populous democracy with 1.2 billion people, India is used to doing things on a big scale. But a scan of some of the key numbers shows there is still plenty of room for more growth. Here are some statistics about the country and its markets.
- Asia's biggest fund takes an algorithmic passage to IndiaJul 16th, 2012 - Eastspring Investments is the largest fund manager in Asia with some 2,000 employees. Adam Cox caught up with one of them, Sanjay Awasthi, a Singapore-based director at the firm who trades the fast-moving Indian markets. Sanjay got his start with India's financial regulator and has witnessed India's evolution from a cash-only market with three-week settlement periods to the hyper-fast, colourful market it is today. He says India has a reputation for being extremely porous, so when a fund the size of Eastspring wades in ($80 billion and counting), the use of algorithms becomes critical.
- Can anyone take on the mighty NSE? India's patchwork of exchanges looks to the futureHirander Misra, chairman of Forum Trading Solutions and director of a consultancy, takes a look at the prospects for any other exchange challenging the National Stock Exchange of India. Misra, a co-founder and chief operating officer of Chi-X Europe Ltd, knows all about the battle between newcomers and incumbents. Here he offers his perspective on where the rapidly changing Indian exchange landscape could end up.
- Can a little Foresight go a long way for the algo industry?Nearly 100 years ago, the American lawyer Louis Brandeis told a popular magazine: "Sunlight is said to be the best of disinfectants". A phrase was coined. The words went on to become a rallying cry for journalists and anti-corruption campaigners, but they may also resonate with a less obvious group: algorithmic traders.
- High Frequency Trauma - What unintended consequences are in store as regulators target HFT?Proposals to regulate automated trading have been coming thick and fast. Bob Giffords, with the help of a host of market participants, peers into a crystal ball to see what some of the side effects could be if any of these ideas were adopted, and whether the market has cause for concern.
- The $650 trillion question: Navigating the OTC market maze in a new regulatory eraMiffed about MiFID II? Think Dodd-Frank should be more appropriately named Dead-Frank? Whatever side of the Great Regulatory Debate you're on, the next few months are likely to go down as one of the more crucial periods in modern financial history for OTC markets. Adam Cox and Tarryn Riley spoke to a host of players to get the low-down.
- Auto ADRsCertain mandate restrictions can hugely increase frictional costs for asset managers. A classic example is where US managers can only hold ADRs as opposed to directly holding foreign stocks, and have historically been hit hard by instrument conversion costs and FX dealing spreads. Joseph Wald, Managing Director at Knight Capital Group, shows how multi asset algorithmic execution can massively reduce these costs.
- Spreadsheet ShortcutConnecting spreadsheets to other applications in real time is an area where things have improved dramatically in recent years. Nevertheless, it's still a task that diverts time and resources from developing the trading strategies that actually capture alpha. Which is a masterly understatement that prompted us to take a look at KaiTrade's K2RTDKit...
- It's just a matter of time...If you're reading this, you almost certainly know a good deal about time. It's a central part of the algorithmic trading business, right? In this edition of Peek Ahead, we ask whether the the people charged with regulating you know much about time.