Is the arms race ending as HFT firms merge technologies?

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Last month KCG Holdings (the Knight/Getco combination) announced a joint venture with World Class Wireless, a technology company closely related to Jump Trading, to pool their array of microwave towers worldwide and jointly operate them.

 

Microwave towers are used by HFT firms to be faster than fiberoptic networks to connect them to the various exchanges.

According to the article in Traders Magazine, it signals a shift in the way HFT firms operate and compete. Over the years, these firms were involved in a technology race to be the fasted firm out there. Huge efforts and huge costs were made. Now  the end of this race appears in sight and the costs have come under scrutiny. 

According to the magazine it is a sign of a maturing market. Perhaps the local (and more modest) Dutch players can take a page from this scenario and see where they can save costs by combining their technologies. Click here for the full article.

EU's Economic Committee accepts benchmark rules

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The European Parliamant's  Economic Affairs Committee has voted in favor of new legislation protecting European benchmarks such as LIBOR and EURIBOR and other benchmarks from manipulation.

The vote was overwhelmingly in favor of the draft legislation and will now proceed to the full EP for final adoptation.

Read the draft legislation here

Not too big to fail

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More pushback from the industry against further regulation. Trafigura, one of the largest commodities traders world wide has issued a white paper in cooperation with Craig Pirrong of the University of Houston. In the paper, titled Not too big to fail, Pirrong argues that even stricter capital requirements on commodity traders are not necessary (as the crash in oil has proven that they can withstand major fluctuations) and can lead to deleveraging and wider prices.

The argument is only made for commodity firms as they do not pose a systemic risk like a major bank.  So, it looks like we continue into a new phase of Mifid busting. "Pick on them, not us". 

Read the full white paper here. 

Prop Roundtable Paper

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FOW organized an interesting roundtable discussion in the UK and published a PDF document. Interesting read. If you're familar with the industry, there is nothing new or shocking to discover but it would confirm what you probably already know; the nature of traders is changing to the 'nerdier' type (sorry boys), margins will remain thin, costs to enter, regulatory changes, and difficulty in clearing higher the barrier to enter, discouraging new blood into this industry.

Read the full article here 

Does HFT have a future?

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If you're a fan of American tv-series, you will know that the US Patriot Act is often used as a sort of 'enabler' to get things done, bypassing the usual rules.

According to Craig Pirrong, professor at the University of Houston, the same thing could apply to the DoddFrank act and HFT. He feels that, regardless of actual argumentation or merits, the Act can be used to kill off HFT, just because HFT is of inconvenience to some.

Click here for his article and blog.