High-Speed Trading Reaches Saturation in the U.S. - Report

With high-frequency trading reaching saturation in the U.S. market, the nation's firms are focusing less on transaction speed, and are instead hunting for patterns in a broader pool of financial instruments, according to a Tabb Group report.

Since trading speeds can't get much faster than they already are, quant-focused firms are researching multi-dimensional arbitrage: strategies that go beyond speed, and emphasize "cross-asset, cross-regional multi-temporal, asymmetric versus symmetric trades, even enhanced front-to-back automation," the report said.

"We've reached just about as much speed as we're ever likely to know, at least within individual matching engines and between New York and Chicago," said E. Paul Rowady Jr., author of the report entitled "Quantitative Research: The World after High-Speed Saturation."

The issue is also facing firms who are looking to bring high-frequency strategies to Asia. "In the Far East, this tipping point will be reached at a faster pace after the last remaining cables are lit and matching engines are upgraded," the report said.

Tabb Group's research, which is based on interviews with 25 buy-side and sell-side directors of quantitative research, added that data storage space is also among the biggest challenges facing their companies. Nearly half of those interviewed told Tabb that simply dealing with the scale of data generated by the market, along with clients and brokers, is the biggest challenge they face managing quant research platforms.

"There's no single storage solution today to handle what's coming," Rowady said. "Until then, quant teams must rely on multiple data stores that specialize in various data sets and crunch through exceedingly large, in multiple physical locations to access the data they need to perform." As the Senior Editor of Advanced Trading, Justin Grant plays a key role in steering the magazine's coverage of the latest issues affecting the buy-side trading community. Since joining Advanced Trading in 2010, Grant's news analysis has touched on everything from the latest ... View Full Bio