Free Site Registration

The Future of Trading

10 Top CIOs on Wall Street |  Why Mutation Will Matter |  Buyside Traders: Not Taking Orders Any More |  Calculating Cost First, Trading Second |  Trading Desk, in One Box |  Changing the Minds of Star Programmers |  2015: The Always On Desk

2015: The Always On Desk

November 4, 2010
By Tom Steinert-Threlkeld

“No matter what programming language you choose, and they are not all created equal, the skill of the programmer makes the difference,’’ he said.

With the number of venues exploding, market data following suit and expansion of time and markets worldwide all part of the environment going forward, “the lifeblood of Wall Street will depend on our ability to harness hundreds and hundreds of processors and simultaneous threads of calculation of calculation,’’ he said at a September conference on high-performance computing.

In the last credit crisis, he noted, banks were not able to adequately calculate the risks they faced. That should not happen again.

There are ways to justify human wisdom, even in the era of the automated trading desk. One is the concept of “At-Trade Transactional Cost Analysis.” This calculates not just all associated costs of a transaction, in advance, but expected return or performance.

This allows firms to turn savings almost into a revenue stream. One big Wall Street firm figures it generated $2 billion in savings from aggressive monitoring of its trading costs and results. And, used properly, such analysis allows traders to be judged on the execution prices and performance they consistently achieve, said Allen Zaydlin, chief executive of Inforeach, a supplier of trading management systems.

24 X 7: NOT

Getting to 24-hour trading, anywhere in the world, on the same equities, though, is not likely to happen in five years or quite possibly even 10.

A big sticking point is likely to be regulation, say Ted Myerson and Gary LaFever of FTEN, which develops risk management products for Wall Street firms. Twenty-four hour trading in stocks would require that regulatory schemes around the world be “synchronized,’’ they contend.

Helping out might be a securities industry “currency,’’ sort of like air miles. But that is not likely to happen either.

Currency exchange on equities trades will continue to just get handled in the settlement process, said Colaquiri of UNX.

Even that will require back office systems to get better, over the immediate future, as more and more markets try to establish cross-border trading of securities.

But even if regulation and back office systems become consistent, there’s still no guarantee that the same equities will ever get traded at all hours, at all points on the globe.

Mathematics, though, can produce substitutes. Already, machines are "replicating a basket of stocks that mathematically looks like IBM" and choosing, at any given instant, which to buy or sell, said Marques.

Twenty-four hour trading will reduce the liquidity of stocks and increase the volatility of their prices, Zaydlin contends. For most stocks, there is not enough interest to keep trading fluidly all day long.

It’s different with foreign exchange markets, where there is “huge liquidity,” said Colaquiri.

Indeed, the answer may be at the other end of the clock, said Drew Miyawaki, head of European and Asian trading for Liquidnet, a market that specializes in moving large blocks of stock.

Download the Report