High Frequency Trading Review


    An Interview with Thomas Chippas

    In this interview for the High Frequency Trading Review, Mike O’Hara talks to Thomas Chippas, Managing Director and Head of Quantitative Prime Services for Barclays Capital, who is based in New York. Thomas was previously at Deutsche Bank where he was Head of Equities Sales, North America, for Autobahn, Deutsche Bank’s electronic distribution service. He previously held management positions at Bank of America and Macgregor, the trade order management firm.

    HFT Review: Can we start with you giving us a brief intro to what you do at Barclay’s Capital?

    Thomas Chippas: I am responsible for Barclays’ Quantitative Prime Services (QPS) business. We’re a vertically integrated business focused exclusively on the quantitative or systemic trading investment manager.  This means we constantly extend our offering to talent who demonstrate detailed knowledge & understanding of the quantitative investor community and complement the product creation process at all stages with innovation and new product delivery. Our QPS team is comprised of experienced specialists who exclusively work with, understand and know quantitative investors.  Our Capital Solutions team analyzes trends in strategies for popularity , performances, fee structures and other aspects of the offering.  Our product development team balances technical and market structure expertise to create and support execution and financing solutions tailored to the quantitative manager.

    HFTR: What role does technology play in your business?

    TC: Well, there’s so much more to this space than coming out with a faster chip! Low latency is an incredibly exciting and very interesting part of what my team does –our Quant team is furiously working away in the lab with Bunsen burners and the beakers – we have a lot of really cutting edge development happening in there – but that innovation comes at the end of a much longer strategic product development process. Technology is highly correlated and intertwined, but it’s not the complete offering – but a component of the platform.

    As I’ve mentioned, the vertical integration of this business gives our clients numerous touch points – We combine thought leadership and technical excellence for one comprehensive client approach.  Our solution set provides clients with the same technology globally, run by a team that’s dedicated and solely services the systemic flow. So we’re not servicing telephone orders, all we do is service this type of low latency direct market access flow. Trade execution is offered through a single, multiple asset high speed SUBM execution platform – which includes SubM, SubM Native and Portal. It’s fully integrated into our cash and synthetic financing platform and we have dedicated resources for I.T. as well, so it is one business unit within Barclays’ growing Prime Services business. Prime specifically covers numerous asset classes – Futures, FI, OTC, FX PB and Equities for a really efficient approach to financing and execution.   

    HFTR: How “high frequency” typically is your client base? And are they trading across asset classes or do they generally tend to focus on one particular market?

    TC: There’s a big difference between what we call high frequency versus quantitative or systemic managers. When we say quantitative or systemic, we’re referring to statistical arbitrage strategies, index arbitrage strategies and volatility arbitrage strategies, so by definition if you’re arbitraging, you’re arbitraging between markets or assets.

    What you find when you narrow all this down to those types of strategies in our business, it’s very heavily equity focused but a significant number of them trade options – especially in the vol-arb space – and a significant number of them are trading futures as well. This demonstrates how the landscape for Quant clients is changing to be multi-asset in nature. What I also see right now is that quite a few systemic quantitative managers are extremely active in the FX space. If you were to place the traditional equity options & futures manager on one end of a horizontal line and have and the FX on the other, there is definitely movement towards the middle. I can’t tell you how many years out until they intercept and cross over but it is happening very quickly. This will generate new client demand, as well as technical and product innovation opportunities – where providers can differentiate themselves in the marketplace.

    HFTR: There seems to be a lot of confusion in the market around these definitions of high frequency versus quantitative or systemic trading, so what definitions would you use?

    TC: That’s the essential question! It may sound pedantic but when someone says, “well, you know, high frequency trading”, my initial response is to sit back in the chair and say, “actually I don’t, could you explain it to me?”

    What I believe people are generally referring to when they talk about HFT are strategies that look and feel a lot like market making, that start the day without any positions and end the day without any positions, they go home flat. But there are characteristics and different trading styles involved in HFT. When I look at the types of clients that we are most prevalent with, the stat-arb, index-arb, vol-arb community, they tend to have a different characteristic than the go home flat crowd – –  they carry positions, have longer term signals in their strategies, and have a need for financing, stock loan and Prime brokerage traditional services. Whereas the HFT community does not need financing components because it takes very little capital for them to lever up and trade during the day and go home flat.

    Firms that are true market makers tend to be broker dealers or, depending which region of the world they’re in, they might be a non-clearing member, i.e. with a membership that lets them represent themselves on the exchange to trade, but then someone else clears their trades for them.

    I would prefer when people start talking about HFT to be a bit more specific, because it would be informative to regulators to recognize some of the differences. The problem right now is that everyone seems to be focused on speed and they are chasing a perceived market opportunity around that that maybe isn’t accurate.  In summary, intraday automated market making strategies may share interest in low latency execution capabilities with quantitative investment managers, but their investment objectives and trading styles may not be the same.  

    HFTR: Why do you think there is so much focus on speed? 

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