Commentary

Tim Quast
Traders Magazine Online News

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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January 1, 2004

At Deadline

By Editorial Staff

Algorithms

* An industry vet is launching an agency brokerage to tap into demand for algorithmic trading. Fred Graboyes, a quant formerly with money manager Intech and Bank of New York Securities, has established Paravane Partners. The six-man operation is seeking to benefit from the current passion on the buyside for algorithmic, or rules-based trading. The process involves the use of complex formulas, which feed programs and large orders into the market in bits and pieces over extended periods of time. The strategy is designed to avoid market impact and match pre-determined benchmarks.

Paravane offers six or seven basic algorithms. They can be tweaked depending on customer needs, according to Graboyes. The New York-based shop already boasts of 35 customers. Three-quarters are hedge funds. The rest are traditional money managers and plan sponsors. Bulge bracket firms dominate algorithmic trading, but Graboyes says his shop has two advantages over the big boys. Paravane's algorithms are better and the buyside's information is safer with Paravane, Graboyes says.

Jefferies

* Jefferies Group, seeking to expand its trading muscle in the technology sector, has bought Broadview International, a mergers and acquisitions adviser to technology companies. Broadview has some 75 investment bankers, working in Silicon Valley, New York, London and Boston. Broadview will operate as a wholly-owned subsidiary of Jefferies Group.

"A significant presence in the technology sector is the key to our building the leading firm serving middle-market investors and issuers," according to Jefferies Chairman and CEO Richard Handler.

NYSE

* The California Public Employees' Retirement System, or Calpers, is suing the New York Stock Exchange and its seven specialists. The lawsuit alleges the Big Board and the trading houses conspired to defraud investors between October 1998 and October 2003. Calpers, the nation's largest pension fund, alleges the specialists "routinely engaged in wide-ranging manipulative, self-dealing, deceptive and misleading conduct" with the "active participation" of the NYSE. Calpers alleges the specialists engaged in violations of the rules of the NYSE, the Securities and Exchange Commission and the Securities Exchange Act of 1934.

Soft Dollars

* The Investment Company Institute has asked the Securities and Exchange Commission to curtail the use of soft dollars by investment advisors and to ban a form of directed brokerage practiced by mutual fund companies. The trade association for the mutual fund industry is seeking "major structural reforms" to alter the relationship between institutional investors and brokers.

The ICI had some soft-dollar recommendations. First, it wants the SEC to ban the use of soft-dollar credits for purchases of products and services such as technology that the buyside can pay for with hard cash. Second, the ICI wants the SEC to prohibit investment advisors from using soft dollars to acquire research products and services from third parties. Purchases would be limited to research created and offered by the broker who executes the trade. Also, the ICI wants the SEC to ban the practice of mutual fund companies sending order flow to brokers to reward them for marketing their funds. That is a form of "directed brokerage." [See Industry Watch.]