Tim Quast
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We're All HFTs Now

In this guest commentary, author Tim Quast looks back at the history of HFT and how the market has evolved to where many firms now fit the definition of high-frequency trader.

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April 1, 2003

Buyside Blues In The Land of ATS

By Peter Chapman

Buyside-oriented alternative trading systems are hurting.

One system, Investment Technology Group's POSIT, has seen its average daily volume cut in half over the past year. Another, Liquidnet, is trading the same number of shares it did a year ago. A third, Harborside+, which only launched last fall, doesn't report its volume.

Aside from ECNs, all three market centers are the main alternatives to brokers for institutional order flow.

Hard Pressed

There are two reasons for the downturn, pros note. First, institutions have fewer orders to parcel out because of the bear market. Second, these orders are usually earmarked for brokers.

The buyside's first priority is to deliver orders to the brokerages that provide it with research, soft dollars and directed brokerage transactions. Only after those chits are settled can the institutional trader work his orders by alternative means.

Right now, buysiders are hard pressed to meet their obligations to their brokers, let alone trade on ATSs. "We're having difficulty paying our bills," said David Brooks, head trader at Boston Company Asset Management. "Our discretionary flow is a much smaller portion of our business now."

The situation is the same at Waddell & Reed. Said head trader Jeff Allbright: "When you are a shop of our size and status your first job is to focus on your research list."

POSIT averaged 20 million shares in the three-month period from December 2002 through February 2003. In contrast, it averaged nearly 40 million shares in the same time period a year earlier. Liquidnet is averaging six million shares per day, analysts say. That number hasn't moved in a year.