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Trading Firm DRW to Buy High-Frequency Firm RGM
Traders Magazine Online News, August 21, 2017
And another one gone, and another one gone…another bites the dust.
Well, sort of. Electronic-trading firm DRW Holdings agreed last week to purchase high-frequency trading firm RGM Advisors LLC.
Chicago-based DRW said Wednesday it is acquiring Austin, Texas-based RGM, though it declined to disclose the purchase price. DRW, whose roots are in futures trading, is buying a firm with an expertise in stock trading. The deal is expected to close in September, DRW said.
The purchase of the HFT firm is further evidence of how firms, not just the broker-dealers, are having trouble making ends meet in this low commission and low volatility environment. The low volatility has been especially rough on firms – as low volatility takes away trading opportunities that many firms rely on to make money. This holds particularly true for HFT firms, whose small, hyper-fast trading strategies are designed to work when volatility is high or active.
According to market consultancy Tabb Group, market volatility as measured by the VIX, has for the second month in a row hit an all-time low. Tabb reported that in July 2017 the VIX average close was 10.3, decreasing even further from the all-time low in June 2017 of 10.5.
High-speed traders flourished in the years after the financial crisis, but more recently they have hit a rough patch. Revenues at HFT firms from U.S. equities trading were an estimated $1.1 billion last year, down from $7.2 billion in 2009, according to research firm Tabb Group.
Founded in 2001, RGM made around $800 million in trading profits over its lifetime, but this year it has been losing money, prompting its owners to accelerate efforts to find a buyer, a person close to the firm said. RGM has also cut staff to around 70 employees, down from more than 100 a few years ago.
RGM was founded by three men: Robbie Robinette, a physics major at the University of Texas at Austin; Richard Gorelick, a lawyer by training; and Mark Melton, a software developer with a specialty in artificial intelligence.
During its peak years after the financial crisis, RGM accounted for as much as 5% of U.S. equities trading volume, a person close to the firm was reported as saying.
DRW was founded in 1992 by Donald Wilson Jr., a futures trader who got his start in Chicago’s trading pits. About a quarter of DRW’s business involves HFT, while other ventures include Bitcoin trading and real-estate investment.
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