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“It has become more competitive for the HFT
industry in general, and I wouldn’t be surprised to
see more consolidation in that space.”
CARL GILMORE, PRESIDENT, INTEGRITAS FINANCIAL CONSULTING.
firms that are struggling will have
to link up to find niches in the
market to be profitable. This could
be done by turning to a money
managing approach.”
Instead, gaining that competitive
edge is shifting to data analytics,
with a focus on extracting infor-
mation from the vast flow of data
generated in the derivatives and
equities markets. Craig Pirrong, a
professor at Huston University, ar-
gued in a recent blog: “the margin
for innovation will shift from hard-
ware to data analytics software.”
With this, HFT could turn
away from its traditional arbi-
trage trading models to more of
a ‘quantamental trading’ model,
which combines fundamental and
algo-driven quantitative trading.
This will involve the adoption of
big data techniques and the use of
predictive analytics tools in order
to generate alpha.
However, Peter Farley, senior
marketing strategist for capital
markets at Misys, argues that this
might not be the most profitable
tactic.
“Many of these more fundamen-
tal-led strategies are already the
preferred tools of many hedge
funds and it is in danger of be-
coming a crowded (and hence less
profitable) space. Profits from HFT
are estimated to have peaked for
the industry at close to $5 billion
in 2009. It is thought that now it is
probably less than a billion dollars,
spread over many more players,”
he says.
Other market participants are
seeing the increasing number of
HFT mergers as the latest phase
in the US financial markets, with
consolidation in the HFT space a
reflection of where business mod-
els are in the innovation cycle.
“It is in the maturity phase where
M&A will happen to reduce cost,
increase market share, and acquire
talent to help diversify into new
markets,” says Rob D’Arco, CEO of
Rival Systems.
“It is a natural process, and in
changing business models, the
most successful firms have a di-
verse portfolio of strategies across
assets classes. HFTs want to fur-
ther capitalise on their investment
in technology by diversifying into
new products such as options and
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