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August 1, 2013

Nanoseconds for All?

UBS' Matt Senecal and Hyannis Port's Tony Amicangioli predict the spread of high-speed trading to asset managers

By Peter Chapman

Matt Senecal is head of business development for electronic trading at UBS. Tony Amicangioli is a founder, president and chief executive at technology vendor Hyannis Port Research. The two companies recently partnered to make Hyannis Port's risk management software available to UBS's high-frequency black-box customers. Both executives believe such speedy technology will become more ubiquitous in the future, leveling the playing field for certain institutional customers. Traders Magazine caught up with Senecal and Amicangioli recently.

 

Traders Magazine: High-frequency trading for the masses?

Amicangioli:HPR believes very strongly that in the next one to five years, there will be a commoditization of low-latency technology. A recent TABB piece notes the difficulty HFT-only shops will face trying to make money on performance-only strategies. They're in a race to achieving nearly zero gain in alpha.

Tony Amicangioli, Hyannis

 

Traders Magazine: So less expensive technology will lead to it becoming more widely available?

Amicangioli:Like any technology, it is initially available to the top players. But over time it tends to become more ubiquitous. We believe that some of the larger ultra-low-latency-centric funds will start to look more like traditional hedge funds and vice versa. The traditional hedge funds are increasingly asking about high-performance, low-latency capabilities, while our information suggests the latency-centric shops are recognizing the need to diversify beyond latency-only strategies.

Senecal: If you look back five years ago, very few of the brokers had their smart order routers or algo engines co-located in a data center. And now virtually everybody-certainly the Tier 1 brokers-does. That's the new normal. You want to be as close to the matching engine as possible when making your trading decision.

 

Traders Magazine: Quantitative money managers are next in line?

Amicangioli:Hedge funds are increasingly realizing that efficiency is everything. A year ago, when we spoke to hedge funds, they would say: "I don't really care about this low-latency stuff. I can just buy the VWAP, and that's OK." Now they're looking at the sum total of the trades they do over a year and coming to the conclusion that every nickel counts. "If I can't interact with the market microstructure the way these high-frequency traders do, I'm at a disadvantage. I'm paying more to trade."

 

Traders Magazine: You suggested it might also be a competitive necessity.

Amicangioli:So the traditional quant hedge funds are definitely asking about low latency. And we're also hearing that they are increasingly finding portfolio managers who have hybrid strategies that depend on low latency to interact with the market microstructure while integrating other, less performance-sensitive techniques. So there are portfolio managers they want to hire but can't, because they don't have the infrastructure to support them. [IMGCAP(2)

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Traders Magazine: So the race for lowest latency is still going on?