Does Speed Still Sell?
With that in mind, it's probably appropriate that it was a buy-side story that prompted the topic of this week's letter. For a while now, we've heard from people on the sell side that, while speed is important, it's not the ultimate determinant of success that it was once portrayed as. A lot of people now zone speed capabilities, where there are the lower third who aren't at all concerned with it, the mid-tier, who are fast enough to compete but do so among themselves, then the bleeding edge, for whom every millisecond counts.
But how much of an impact does this have? On the buy side, money is still being made, but in a far more limited manner than previously. High-frequency trading (HFT) shops simply aren't as profitable as they once were, whether it's due to regulation, the investment required to maintain technological superiority, or other reasons. On the sell side, many people that I speak to say that it's stability and quality that they're after, with speed as an added bonus. Yes, some brokers have done very well out of high-speed market access, particularly the Russian brokerage houses of late, but for the bulge brackets, it's just not as front-and-center as it once was.
Or is it?
Quite frankly, it depends on who you're asking. NYSE Euronext, for instance, still talks about time savings when introducing new networks, such as the microwave-based one it plans for London. Banks do a brisk trade in their low-latency platforms, such as Citi with Velocity, while (some) exchanges are copping a lot out of their co-location schemes.
But that's all around speed as an idea, without seeing the kind of frantic rush to take off fractions of a second that resulted in firms laying new lines between New York and Chicago, at enormous expense, a few years ago. It tends to be a thing for newer markets these days, where the faster connections to newly liberalized exchange landscapes, such as Australia, can net dollars.
Some people that I've spoken to, quite frankly, have said that speed is unattractive these days. They worry about the effect of things like the financial transaction tax or, more accurately, the psychology that indicates among the regulators and the wider public. Regardless of right or wrong, people seem to find something inherently disturbing about the very idea of HFT and high-speed trading through algorithms. But speed is necessary to compete, and expensive to maintain, leaving many firms in a quandary.
High-frequency trading (HFT) shops simply aren't as profitable as they once were, whether it's due to regulation, the investment required to maintain technological superiority, or other reason.
So yes, essentially, speed still sells, even if it's only the very edge that care about the milli/micro development. For others, it's expected.
In terms of more events, don't forget that the European Trading Architecture Summit is coming up, in London, on November 19. Details can be found here.
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