HFT Clearing: A TABB Group Case Study
02 March 2011:
Robert Iati, a partner at TABB Group, discusses the not-so-sleepy business of clearing and how a relatively new breed of clearing firms has cropped up to meet a need: HFT.
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2 Comments to "HFT Clearing: A TABB Group Case Study":
WhatUpWorm
03 March 2011
What happens when the HFT shops are forced to operate underneath the umbrella of a Broker Dealer due to Dodd Frank?
riati
03 March 2011
I don't agree that they will be forced to be broker dealers under DF. DF mandates that broker dealers do LESS prop trading, which is driving many to divest of their prop desks. This will in fact create more indie prop shops, as those formerly on the prop desks of GS or MS, etc... will look to go out on their own. HFT prop trading firms will always require the use of a firm to clear their trades. Few have the infrastructure to support that internally. However, as long as there are many props and click trading firms that remain small and dependent on other broker dealers to provide IT and to clear for them, this business will be viable. The major threat comes to these firms is related to pre-trade risk mgmt and elimination of naked access rules, along with the general cooling environment for high freq trading. Will HFTs contract as volatility wanes and Feds paint them as the Evil Empire? Will the requirements for HFT Clearing firms to provide effective pre-trade risk tools eat into their ability to provide low cost services? Will their inability to offer naked access cut into their value prop?
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