A View From Europe
Mon, 21 Jun 2010 19:26:00 GMT
Interview with Walter Hendriks, ABR Financial
In the third of our High Frequency Trading interviews, we talk to Walter Hendriks, Managing Director of ABR Financial, a Netherlands-based investment firm providing liquidity to the major Pan-European financial markets. Mr Hendriks has been actively options trading since 1995, when he was a local trader on the Amsterdam Option Exchange. Before joining ABR in 2008, he spent three years as a Managing Consultant at CapGemini Global Financial Services, managing projects around Investment Banking, Asset Management, Clearing, Transaction Banking and Structured Products with several international operating Dutch banks, and advising European regulators on implementing MiFID and Market Abuse directives.
Mr Hendriks has had a number of papers published on topics such as European Asset Management, Financial Markets Regulation and Multilateral Trading Facilities (MTFs).
High Frequency Trading Review: Walter, what’s your definition of high frequency trading?
Walter Hendriks: Well, there are multiple angles to answer that question. The initial idea came from the exchange world, regulators, law makers, policy makers around the world, who wanted to improve trade matching to make it faster, to have more trades done electronically at the same time, matched, going to the various back end systems, clearing house etc., instead of via the old batch files sent twice a day depending on value dates, etc. So they came up with the idea of making this world electronic.
I’ve been on the trading floor trading derivatives since 1995, so I’ve seen how trading has evolved to keep up with the technology. In Europe, primarily due to MiFID and other European laws, there are now multiple exchanges and multiple trading platforms. We have the technology where we can roll out fiber through every part of the world and connect those trading platforms. This is obviously very different from what we used to do, when we were on the floor, physically bound to just one or two instruments, or underlyings for trading derivatives.
Everything went screen based because the exchanges wanted it, because the law makers wanted it, because clearing houses and everybody else wanted it, but at that time there was a lot of resistance from the traders themselves to give up their practice of writing tickets and trading in “the old style”.
So high frequency trading basically comes down to computer-based trading and having technology that’s powerful enough to do multiple trades per second. Unlike 15 years ago, when you could trade frequently but not highly frequently!
HFTR: So how does ABR get involved in high frequency trading?
WH: We try to make use of the power of IT in all its aspects to trade multiple markets and multiple exchanges. We look for small differences in the market based on our views, our algorithms, our calculations, and then we would do a certain trade. On top of that we have calculations or algorithms that decide whether we want to buy or sell options, buy or sell stock, buy or sell warrants or arb them versus other underlying instruments for example.
The IT world with all its aspects, with software, hardware, connectivity, switches, CPUs, memory, routers, etc., offers us a greater view of what is happening in the various financial markets. So we can trade more and more instruments at the same time, with less people.
HFTR: On the subject of multiple markets and multiple exchanges, how would you compare the high frequency trading landscape in the US versus Europe? What do you see as some of the main differences?
WH: Well, European markets are obviously lagging as always compared to the US markets. I’m involved in European multiple platform trading and we are less active on the US markets but as far as I can judge, they basically built & rolled out the MTFs (as we know them today here in Europe) 10 or 15 years ago. So their experience is probably a couple of years ahead of ours. I am not saying technology-wise they are ahead of us because Europe has been one of the primary parts of the world where technology has been a driver for innovation, for connectivity and for moving on in general.
HFTR: There are a lot of firms, particularly on the buy side, investment firms and so on, who say that a large proportion of high frequency trading is predatory. What would be your response to that?
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