How GETCO Went From HFT Trading Giant To Dwarf, And Raked Up Over $50 Million In T&E Expenses Along The Way

Tyler Durden's picture

There was a time back in 2009 when GETCO was the absolute titan of the high frequency trading arena, printing money with the reckless abandon of a Federal Reserve on full tilt. It even got its own profile piece in the WSJ in the summer of 2009: "Meet Getco, High-Frequency Trade KingMeet Getco, High-Frequency Trade King." However, the good days were not to last as shortly thereafter we got a flash crash, then we got three + years of Ben Bernanke's (and every other bank's) central planning and some $10 trillion in combined exogenous liquidity to prop up the market, both of which resulted in the complete loss of faith in a standalone stock market by the retail investor (and once the current unwind of the December rotation from stocks into savings accounts over capital gains tax fears ends, the outflows will resume especially as latest ICI data shows with the smallest inflow into domestic equities to date in 2013).

And since retail orders no longer would feed the frontrunning, sub-pennying, quote churning, flash crashing juggernaut that is HFT, that meant less revenue and profit for algo master GETCO.

How much less? A whopping 82% less in the nine months ended September 30, 2012 compared to a year prior, and 92% less when annualizing 2012 results compared to the firm's heyday in 2008, the year in which it made a record $430 million in net income. Getco's net income as of September 30, 2012: a tiny $25 million.

Which is why the status quo and the entire institutional infrastructure is so very desperate to get the retail investor out of hibernation and the "safety of bonds" and back in the corrupt casino known as the "stock market" dominated by the likes of Getco, Goldman, the G-7 (since the markets are now nothing more than a political vehicle to pass policy and promote a globalist agenda), and, of course, Ben Bernanke.

To see the desperation visually, here is a chart of private GETCO's net income, which was revealed for the first time today as part of the S-4 filed in relation to the still very shady collapse and acquisition of former market making giant Knight Capital, which suicided itself in the span of 30 minutes after an errant algo literally destroyed the company.

GETCO Net Income - the fun days are over.

Getco Revenue - not only a spending problem; a revenue problem too.

Yet while as revenues drop, even GETCO has no choice but to build out its collocation infrastructure, putting up ever bigger, ever faster, ever frontrunning-er computers at exchanges, just so it can in turn be bigger and faster than every one else who is immitating its strategy of bringing nothing more to the table than the fastest algorithm that can and will intercept any inbound orders and scalp pennies per trade on millions and millions of trades.

Oh well, it was fun while it lasted - and now, like with AAPL, like with every other industry in which the frontrunner no longer provides anything unique or special, the margin war begins. May the one with the largest balance sheet and biggest accordion credit facility win.

And yes, it definitely was fun: one of the P&L line items broken down was the firm's "travel and entertainment" expenses. At $52.8 million in the past six years (annualizing the 2012 number), travel was probably modest, but the entertainment sure was grand, especially for whoever the clients on the receiving ends of the various expensed lap dances entertainments were.