“With the advent of MiFID II and
unbundling, it just seems like the
time is really right for a superior
execution-only agency offering
really to be well accepted by the
Last year, it was reported that
Virtu began talks with German
asset manager Union Investment
in which it would execute Union’s
trades on an agency basis in Eu-
rope. With the KCG acquisition,
Virtu could accelerate these talks
and even approach more European
In February, Virtu said it had European buy-side firms “lining up”
for its market making and technology services ahead of MiFID II.
Where does HFT go from here?
As consolidation becomes the order of the day in the HFT industry,
this could have a disruptive impact
of the rest of the marketplace.
For example, with the acquisition of KCG, Virtu will effectively
control one fifth of the US equity
market. So what does this mean for
market making going forward?
“Any time you have consolidation
with one or two firms providing all
of the liquidity, you’re more likely
to see short-term volatility. You’ll
also have consolidation of information, and there is a lot of value in
information. With consolidation in
multiple asset classes there could
also be a disruption in correlations,” adds Rival’s D’Arco.
Furthermore, with a concentration of HFT firms providing market
making services, it could spell a
return for banks into the space, especially in the current deregulatory
environment in the US.
“Market making is a cyclical business, and probably over the next
five years we may see those banks
coming back into the market making business but with a different
approach to that of KCG and Virtu,
for example. Ultimately we will see
new initiatives based on electronic
trading,” adds Thieullent.
To a large extent, it seems the
Jurassic period where HFT dominated trading will likely come to
an end. As a standalone capability,
HFT will likely diminish in importance.
But that is not to say it spells the
end of all HFT firms. As men-
tioned, the business model for HFT
firms will have to change radically
in order to stay profitable. The
ability for those firms to embrace
new investment approaches, such
as machine learning and AI, to dif-
ferentiate their existing capabilities
will determine their success.
Some in the hedge fund industry
have already made headwinds
in this area, with Man Group,
the world’s biggest hedge fund,
appointing its first head of machine
learning for its GLG subsidiary.
HFT has definitely become less
flashy, and it will be no surprise
that in five years’ time, those predatory HFT firms will be rebranded
as technology providers.
PETER FARLEY, SENIOR MARKETING STRATEGIST, MISYS
“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.”