Thomas Weisel Partners expects to offer filtered sponsored access for high-frequency trading clients during the first quarter of 2010.
The San Francisco-based investment bank believes that by year’s end, its sponsored access business could represent 10 percent of electronic trading revenues, said Stephen Blatney, who heads electronic and portfolio trading. He declined to offer specific projections.
"We want to compete in the high-frequency trading space and capture the stat arb and quantitative accounts," he said.
Sponsored access–when a broker-dealer uses its market participant identifier to let a customer trade directly on an exchange–has grown dramatically over the past five years. According to Aite Group, sponsored access has grown from about 15 percent of total equity market daily volume to an estimated 50 percent in 2009.
Because two-thirds of today’s volume comes from high-frequency trading, the business is too big to ignore, said Dhiru Patel, TWP’s chief quantitative strategist. "We have to get into that market."
The firm is choosing a third-party vendor for connectivity to the exchanges. TWP would view and monitor order flow from a front-end interface, Blatney said. For the second phase, the firm would eventually have order flow move through its direct-market access infrastructure. "The individual institutions would be getting their own market data," he said, "and we would be that pure, fast pipe connectivity partner into the exchanges."
TWP clients have been building fast algos, but lack the fast networking infrastructure, Patel said. Data centers are expensive, and require periodic upgrading, he said.
"Some of the more sophisticated hedge funds have built more proprietary products," Blatney said. "And the only way to be a viable partner with them longer-term is to also have an infrastructure where we can do sponsored access for them when they use their proprietary algo trading tools."
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