Machine Readable Newsfeeds Gain Traction Beyond HFTs (Part 2)
Traders Magazine Online News, June 6, 2011
What began as a way for 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 that is attracting the attention of market players outside the world of HFTs.
Machine readable newsfeeds take data from newswires and feed it directly to computers which can then act on that information automatically.
Steve Hughes, director of sales at the HFT service provider Exegy, said the high-frequency traders he deals with are not terribly interested in machine readable news feeds right now.
"When you can process a piece of information in 10 millionths of a second and get to the market with it, you know when news came out and a stock starts to react without even needing to know what the news is," Hughes said.
According to Hughes, machine readable news feeds might be more helpful to asset managers on the buyside who are trying to execute longer-term strategies at the best price.
In fact, speedy news analysis has been gaining a following among asset managers, according to Rob Passarella, vice president of financial markets for Dow Jones.
Rob Passarella, Dow Jones
Asset managers frequently use multi-factor models that weigh various company fundamentals. Now some models use news as one of the factors they consider in examining a stock, Passarella said.
Those same asset managers can also use news to look for liquidity. Large money managers might find it difficult to trade small- and mid-cap stocks where they could hold sizable stakes in companies. Certain news events can trigger greater liquidity, and that might be a good time to execute longer-term strategies, according to Passarella.
Since investment banks have dramatically cut back their research desks, news has become a bit of a proxy for the feedback that used to come from researchers. Where industry experts used to move stocks, now that role is frequently taken on by journalists.
"I come out of the equity research world, and you know what's happened to research in the last couple of years," Passarella said. "A lot of times what happens is that globally there aren't enough people covering from a research perspective, and news in a sense fills in the gap for coverage."
The next step the industry takes might be gathering information found on social media sites, according to Passarella. He said there is a lot of data to be mined in terms of who is linking to what information.
Aite Group's Adam Honore said while a lot of firms are analyzing social media, there is currently not enough historical precedent to gage how effective that will be. A lot of the people most knowledgeable about using social media are not interested in using that data for investing purposes, he added.
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