The largest hedge funds overwhelmingly press their brokers for information about the way their trading algorithms work.
According to a recent survey by Tabb Group, 79 percent of large hedge funds query their brokers about their algos. Of the smaller hedge funds, only half bother to ask.
Tabb considers a hedge fund large if it trades over one million shares per day.
“Given the myriad idiosyncrasies from one broker’s algo to the next, the task of understanding the core logic and capabilities of a given algo has never been more challenging,” state authors Adam Sussman and Colby Jenkins in their report, “U.S. Hedge Fund Equity Trading 2013.”
Of those large hedge funds that query their brokers about their algos, three-quarters told Tabb the transparency was helpful. Of the smaller hedge funds that probed the algos, only 36 percent said the information was useful.
The most popular providers of algos to hedge funds are Credit Suisse, Morgan Stanley, Goldman Sachs, Merrill Lynch, and JP Morgan, according to Sussman and Jenkins.
