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July 1, 2011

News Now

Machine- Readable News Feeds Look Beyond HFTs

By James Armstrong

What began as technology used by high-frequency traders to quickly access core economic data --such as consumer price indexes and unemployment numbers - has become an increasingly sophisticated data-delivery system attracting attention of market players outside the world of HFTs.

Machine-readable newsfeeds are services that take data from newswires and feed it directly to computers. The computers can then act on that information automatically, placing trades at lightning-quick speeds.

Now, however, machine-readable newsfeeds offered by such companies as Thomson Reuters, Bloomberg and Dow Jones, are drawing in a new breed of customers, like long-term investors, as well as firms trading futures and options. 

Rich Brown

"When we launched it early on, it was a niche product adopted by the most sophisticated investors," said Rich Brown, global business manager for machine-readable news at Thomson Reuters. "Over the last few years, we've seen a broader adoption, beyond the higher-frequency black-box traders to longer-term investment strategies."

Brown said the service offered by Thomson Reuters can determine signals for changes in stock prices that can last for months, not just milliseconds. While high-frequency traders still use the service to give their computers an edge, the system is also used by traders less sensitive to latency, such as those engaged in statistical arbitrage.

Brown said that though his company's platform launched in 2006, its growth has exploded since the service began offering less structured news data.

Research firm Aite Group reports that about 35 percent of all quant firms are now using some sort of machine-readable news.

"The first time I did a report on it, only 2 percent were using it," said Adam Honoré, research director for Aite. "That was 2008, so there's been pretty substantial growth."

In particular, many quant funds trading futures and options are gravitating toward machine-readable newsfeeds, he said.

It is still primarily high-frequency traders who want quick access to economic indicators, but more traditional firms are using electronic news feeds for risk management and other purposes.

Harrell Smith, head of product strategy for the systems vendor Portware, said there is only so much information traders can take in at once. Computers can notify traders if there is a event or trend they should examine, he said. Firms that use the technology, however, tend to be very quiet about their methods.

"Like a lot of other emerging technologies, it's something that a lot of firms may not want to widely publicize," Smith said. "Especially in the hedge fund community - they're notoriously secretive when it comes to anything that could give them an edge over their competitors."

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