GETCO Full Frontal
The Wall Street Journal is finally heatmapping on exposing the key players of the day. Scott, a tip from us - next up: RenTec's Medallion... You will find much more juiciness to sink your teeth into. But for today Getco serves just fine.
From the WSJ:
Since its founding a decade ago, the firm has risen to become one of
the five biggest traders measured by volume in stocks and other
instruments that trade electronically on exchanges, such as Treasury
bonds and currency futures, according to firm executives, who spoke
with the Journal this week, and other people in the industry.
"They are probably the biggest market maker in the U.S. stock
market," said Justin Schack, a vice president at Rosenblatt Securities
Inc. who closely tracks high-frequency trading. A market maker is a
firm that always stands ready to buy or sell a stock.
High-frequency trading, in which traders use powerful computers and
algorithms to trade at lightning-fast speeds, has grabbed attention
after it produced stellar results during the financial crisis and amid
estimates that it now accounts for more than half of U.S. daily stock
Critics say high-frequency traders can trade ahead of less
fleet-footed investors and squeeze pennies out of their pockets.
Defenders say high-frequency shops help markets operate more
efficiently by constantly stepping in to trade securities when
investors wish to buy and sell. That, in turn, makes trading cheaper
for individual investors.
Lest you thought Getco et al would go down without a fight:
"Electronic markets have been the best-performing parts of the
financial markets" in the past few years, said Dan Tierney, a
co-founder of the company with Stephen Schuler, in a rare interview. By
contrast, many securities and derivatives traded over the counter, such
as credit default swaps, malfunctioned amid the credit crisis, with
Curious - it seems the heads of these firms are finally crawling out from behind the shadows and vigorously defending the noble services they provide as undesignated market makers who have the option of disappearing on a moments notice and collapsing the liquidity of the entire market. As for devastating consequences, wait to see what happens if all the stock market liquidity were to simply go away one day. Yet again, one wonders why Messrs. Schuler and Tierny are suddenly feeling threatened.
And yes, here comes the liquidity defense:
One day last October, Getco juggled about two billion shares,
representing more than 10% of the volume in U.S. equities, according to
a person familiar with the firm.
Without high-frequency traders, Mr. Tierney says, the market's
losses could have been much steeper. The Dow Jones Industrial Average
plunged 14.1% that month.
Now that Getco is favoring the PR approach, it can disclose how much of the churn in AIG, BAC, FNM and FRE it has personally been responsible for.
And, yes, "providing" liquidity is profitable:
All this has been profitable for Getco, which earned about $400 million
in 2008, trading mostly with its own money, people familiar with its
finances say. Getco, which stands for Global Electronic Trading Co.,
declines to comment on its profit.
And according to a tip, GETCO made $800 million last year! On 250 employees: that's well over $3 million a pop, a number most investment banks would kill for. However, don't confuse Getco with an actual market beneficial, long-term investors:
Unlike traditional Wall Street firms, the company holds relatively few
securities by the time markets close for the day. Nor does it use much
leverage, or borrowed money, to amplify the effects of its trades.
Since it constantly buys and sells, it can move in and out of hundreds
of millions of dollars' worth of securities every day with a relatively
small amount of capital. It favors shares that are the most heavily
Truly Getco is a real humanist for allowing the fab five fins to amount to 30% of the NYSE volume. The fringe benefits to the markets are incalculable.
Getco depends on the success of its proprietary complex algorithms to
help it make money on the transactions more often than not. It also can
pick up tiny rebates that some exchanges offer to firms willing to take
the other side of trading orders. The company focuses on hiring top
computer programmers and technicians, as well as traders.
Hey Sergey, if the Teza gig falls through, you know where to send your resume (but you already knew that).
And going back to our original point, Scott - have a call into East Setauket. You will be amazed at what you may find.