There has been much talk in the markets recently of the proposed “Volcker Rule”, which is intended to prevent banks from engaging in any proprietary trading activities. But what is interesting is that a number of banks now seem to be spinning off new, independent hedge funds, so that the proprietary trading can continue, albeit under a somewhat different guise.
Technology firms who service this market are rubbing their hands together with glee, because it is allowing them to approach a whole new set of potential customers.
Two such vendor firms are Progress Software and Statistical Research Laboratory, who recently announced a tie-up that will allow them to offer a “one-stop-shop” pricing, quantitative modeling and algorithmic trading solution to these new players. The new offering will include the Progress Apama complex event processing (CEP) technology.
According to sources at the High Frequency Trading Review, we can expect other vendor firms to jump on the bandwagon. Firms like FTEN, Fixnetix, Quanthouse and ULLINK, who specialize in solutions for low latency, high frequency trading, all have offerings that will allow hedge funds to make the most of the changing trading landscape.
The idea behind the proposed Volcker Rule is to limit the proprietary trading activities of commercial banks and to curtail any kind of unacceptable risk taking. Nobody wants another massive bailout after all. But the proposed ban also aims to prevent banks setting up or spinning off hedge funds, so it’s not entirely clear yet how the banks intend to get around this aspect of the Rule. No doubt they will find a way.
But whatever happens, it seems there is a renewed appetite for technology among the hedge funds. High frequency trading is growing at an incredible pace, with more and more participants wanting a slice of the pie. But high frequency trading requires all kinds of technology, to analyse the markets, perform complex calculations and send orders into the electronic marketplaces at high speed.
One thing is certain however. The markets are evolving, for good or bad. Whether the high frequency trading systems take over the markets (as they seem to be doing) or whether they get regulated out of existence, 2010 will definitely be a year of change.