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High-frequency trading company Tower Research Capital is planning to launch funds for external investors as it appears to change beyond its ultra-fast strategy that has become a big player in the global stock market.
Tower’s funds aren’t the second most common in the industry and hold investment positions for hours or days at a time, people familiar with the issue say. This marks one of the first examples of large, fast, proprietary trading shops that open products for external investors.
Founded in 1998 by former Credit Suisse fixed income trader Mark Gorton, the New York headquarters is set to launch the fund later this year, one of the people said.
Tower declined to comment.
After the 2008 financial crisis led banks to withdraw from market production activities and strict regulations were introduced, Towers and other highly secret trading companies became the dominant forces on Wall Street.
Most often, they use complex algorithms to exploit small price inconsistencies, to exploit stock patterns, to make very small trades with options that can last just 10 millionth of a second. Citadel Securities alone processes more than $4500 billion in transactions daily, including almost a quarter of US stock trading.
Some of the largest trading companies have expanded to the market in recent years due to government and corporate bonds. However, so-called medium frequency strategies in stock trading are beginning to take on a larger share of revenue, with companies increasingly holding positions minutes, hours or days before closing.
“If you’re really good at mining gold, why are you just sticking to mining gold?” David Lariviere, a professor of financial engineering at the University of Illinois, said he previously worked for the US market maker GTS.
“As the market becomes more efficient, knowledge of how to do things (high frequency trading) spreads,” he added, removing barriers that forced businesses to expand into niches, lucrative trading, towers and other businesses, mimicking multiple strategic funds, including Millennium Management.
“There is a finite amount of money that can be made with a very high frequency strategy,” said someone near the tower.
They added: “This is a high-cost business and I think every company is looking at ways to leverage its cost base to apply quants and models, systems to more (part of the market). It focuses solely on the progressively moving () spectrum for companies like towers that focus on the short-term end.”
Before establishing Tower, Gorton developed the Limewire file sharing platform, which was shut down by US authorities in 2010. Most recently, he donated money to a pro-consing pricing campaign in New York, supporting the hyper-political action committee that supports the President of Robert F. Kennedy JR.
