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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.

 

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Wed, 02/13/2013 - 19:22 | 3241474 fourchan
fourchan's picture

lol we all took our balls, the ones we had left over from the hft rapes, and left the game.

let the algos beat against themselves until they all devide by zero.

buy gold and let the computers fight it out.

 

Wed, 02/13/2013 - 19:25 | 3241481 847328_3527
847328_3527's picture

I'm 90% out now...when house prices drop another 50% I'll by some of them...but until then...I'm laying low.

Wed, 02/13/2013 - 20:02 | 3241535 notbot
notbot's picture

Great find Tyler.  The main expense over the last 5 yrs, of course, is employee comp: $1.2bn from 2007-2011.

For "fewer than 250 employees" according to WSJ.  Probably fewer than 100.

Nice work if you can get it.

Wed, 02/13/2013 - 20:07 | 3241543 CPL
CPL's picture

<sniff sniff>

 

Smell that...fresh pink slips for Getco.

Wed, 02/13/2013 - 21:20 | 3241670 LongSoupLine
LongSoupLine's picture

Parasitic wealth rapists. I fucking hope every last fucking one of them ends up in a shit filled ditch getting fucked up the ass by wild fucking dogs. Fuckers.

Wed, 02/13/2013 - 20:13 | 3241559 monkeyboy
monkeyboy's picture

I wouldn't mind that tiny $25M income ;)

Thu, 02/14/2013 - 14:28 | 3243679 iTradeSize
iTradeSize's picture

 

This article misses the mark slightly. GETCO makes most of their revenue from prop trading activities (their client services business is small, hence the Knight acquisition); the travel & entertainment funds were probably spent on traders and other employees, not clients. Extravagant company trips are common amongst Chicago prop firms (or were back when it was raining money).

As an aside, it's a shame all you guys got out of the trading game. You weren't as good at it as we are, and we did so enjoy taking your money.

Love,
The algos

p.s. Happy Valentine's Day

p.s.s. It was consensual and you know it.

 

Wed, 02/13/2013 - 19:23 | 3241477 Conman
Conman's picture

Trickle effect - strippers and purveyors of fine champagnes are people too.

Wed, 02/13/2013 - 19:26 | 3241483 buzzsaw99
buzzsaw99's picture

Wouldn't that make it T&A instead of T&E?

Wed, 02/13/2013 - 19:25 | 3241480 Racer
Racer's picture

When the parasite is too greedy it kills itself

Wed, 02/13/2013 - 20:08 | 3241547 CPL
CPL's picture

always

Thu, 02/14/2013 - 02:06 | 3242342 Oh regional Indian
Oh regional Indian's picture

Indeed. Symbiotic thinking is not in the quiver of Rapacious Capitalists.

Infinite growth = Impossibility

Even the Universe is bounded.

ori

Thu, 02/14/2013 - 19:30 | 3244824 fxrxexexdxoxmx
fxrxexexdxoxmx's picture

 

 


Even the Universe is bounded.


Maybe, maybe not. For ever theorists you can find advocating a bound Universe you will discover an equal number supporting and alternate hypothesis.


IMHO only g-d knows.

 

Wed, 02/13/2013 - 21:26 | 3241683 TaborKnight
TaborKnight's picture

well said

Wed, 02/13/2013 - 22:00 | 3241794 DeadFred
DeadFred's picture

The base period being compared to was chacterized by wild wild swings and the beginnings of the predatory algo attacks that Nanex has been so kind to documenrt. They made a lot of $$$ in those days. Maybe they're getting kickbacks to keep things on the straight line upward. If not I think they might start to get itchy for "the good ole days" and create some profitable volatility. It's hard to take the bloodlust out of a shark.

Wed, 02/13/2013 - 19:26 | 3241482 Terminus C
Terminus C's picture

In the words of Nelson Muntz,

 

"Ha ha!"

Wed, 02/13/2013 - 19:30 | 3241493 kill switch
kill switch's picture

Whats left of Amerika...

 

http://www.youtube.com/watch?v=X6ymVaq3Fqk

Wed, 02/13/2013 - 19:33 | 3241497 CalibratedConfidence
CalibratedConfidence's picture

cat is out of the bag on special order types bitchez

Wed, 02/13/2013 - 19:33 | 3241498 Clowns on Acid
Clowns on Acid's picture

100% agreement Tyler. Markets are now just another pawn in the agenda of the tweed wearing fascists "save our money, tax slaves".
Many HFT's are seeing their revenues down substantially so they are "renting" out their trading infrastructure to the banks. Banks figure that they could never efficiently build that which a stream lined, small, fast moving organization could.....so why waste the $$, just rent the system that works far better than the banks ever could.
Now just think about how long a "quote stuffer" would last in the market making crowd in the "old days". The quote stuffers would not get anything done (filled) and would most probably be fined.

Wed, 02/13/2013 - 20:15 | 3241562 tbone654
tbone654's picture

60 years of backtesting gave me a model that works in any decade...  Except this one...  Used to be able to "TRIPLE" my money every 6 months on a REGULAR basis...  now I'm lucky to break even...  (ok, I do a little better than that)...  but HFT and Central Planning HAVE broken the stock market so bad, I don't think it's possible to ever have anyones trust again...

thank you Corzine, Madoff, HFT, Dimon, etc. buh bye...

Wed, 02/13/2013 - 23:04 | 3241966 Clowns on Acid
Clowns on Acid's picture

tbone - with due respect ...but if you have been tripling your money every 6 months, on a regular basis, for approx 60 years....don't you have enough by now?

and by the way....this is ZH...one doesn't say "thank you" to Corzine, Madoff, Dimon, Bernanke, Barney "he made me bite the pillow" Frank, or to Chris "the human brown bag" Dodd. One screams.... "Fuck You !!...Corzine, Madoff, Bernanke...et al.

Wed, 02/13/2013 - 19:39 | 3241508 Lost Wages
Lost Wages's picture

LUSERS! (losers + users)

Wed, 02/13/2013 - 20:03 | 3241536 ekm
ekm's picture

What have I been saying for months already?

Since primary dealers have bought up all stocks via QEs, nothing is left to trade with. Hence, HFTs are fighting against each other.

 

For Retail, now retiring, or frightened, or part timer, STOCKS ARE SIMPLY UNAFFORDABLE as gambling products.

I'm sure retail is dying to play the casino, but at 15k, dow is unffordable to gamble with.

 

Hence, as I've been saying for few weeks already, S&P at 400 and crude oil at $15 temporarily, is INEVITABLE. Wall Street lives of stock churning, not stock ownership. They will crash it by having few of their peers commit suicide, same way they forced Bear Stearns and Lehman and MFG commit suicide.

Wed, 02/13/2013 - 20:10 | 3241552 Dr. Engali
Dr. Engali's picture

That's what they don't understand .. In order to revive the market they need to kill it. Nobody with any brains is going to jump in at these levels. You and I share the same target. S&P 400 is where this pig needs to bottom and the real value players can take out all the weak hands.

Wed, 02/13/2013 - 20:17 | 3241566 ekm
ekm's picture

Death and Resurrection is way, way, way better than Death by a Thousand Cuts.

Wed, 02/13/2013 - 20:21 | 3241575 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

S&P at 400 and oil at $15/b?

What?  And the dollar is at (DXY) 120??

Lol, yeah right....

King dollar!

#sarc

Wed, 02/13/2013 - 20:40 | 3241596 ekm
ekm's picture

If you have oranges to sell and you price them at $50/lbs, is anybody going to buy them? The answer is 'no'

 

If you have stocks to churn out but their price is dow at 15k, is anybody going to buy them? The answer is 'no'.

 

Hence, same as for oranges, the sellers would have to reduce the price of stocks drastically to make the products AFFORDABLE.

 

I see a good affordability level at S&P 400

Wed, 02/13/2013 - 21:29 | 3241695 TaborKnight
TaborKnight's picture

People love capitlism, until it needs to reset itself to kill off greed. Thats when socialism is sparked.

Wed, 02/13/2013 - 21:39 | 3241731 ekm
ekm's picture

impressive observation

Thu, 02/14/2013 - 07:52 | 3242558 MillionDollarBoner_
MillionDollarBoner_'s picture

It will never happen because THEY don't want YOU to win - its against the rules, apparently....

Wed, 02/13/2013 - 20:06 | 3241541 Dr. Engali
Dr. Engali's picture

This trend continues for much longer then GETCO is going to need some of that liquidity they claim they provide the " market".

Wed, 02/13/2013 - 20:08 | 3241546 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Japan's 4th quarter GDP came in negative.

Time to print!

[honk, honk, rattle, rattle]

Wed, 02/13/2013 - 20:09 | 3241548 buzzsaw99
buzzsaw99's picture

How 'bout that left hand Ace? http://www.youtube.com/watch?v=9wM8RREueMQ

Wed, 02/13/2013 - 20:12 | 3241554 vintageyz
vintageyz's picture

I'd be happy to take that "tiny" amount off their hands!

Wed, 02/13/2013 - 20:13 | 3241557 chump666
chump666's picture

I love it.

A stock bubble and a HFT bubble all from the doomsday engine known as the Federal Reserve.  Follow those those academic nutcases at the printing press and you'll be fleeced in the end.

Wed, 02/13/2013 - 20:21 | 3241572 ebworthen
ebworthen's picture

The won't be getting my shekels to play with.

Elvis has left the casino, and so have I and a lot of other regular people.

Rub your own nickles together you leeches.

Wed, 02/13/2013 - 20:21 | 3241574 babylon15
babylon15's picture

GETCO was founded in 1999 so they were in business long before HFT (reg nms, 2007).  They were an honest to goodness market maker.

 

Market makers made a killing in 2008 when markets were in turmoil, but imagine how much worse the real markets would have been without market makers actually taking the opposite trades.  I'd rather have market makers putting real capital on the line, instead of central banks putting artificial capital on the line.

 

I'm not sure this news is a good sign.

Wed, 02/13/2013 - 20:45 | 3241607 billsykes
billsykes's picture

HFT will be seen as a very short term play. WHY? because if they crash this super fragile market and fuck up a major stock- there will be hell to pay.

HFTs don't lobby in Washington, they are permitted solely because the idiots don't know how dangerous they really are until it happens. Like frogger on meth and instead of a frog its a guy with a dynamite vest.

Wed, 02/13/2013 - 20:50 | 3241615 GrinandBearit
GrinandBearit's picture

They were a fraud from the GETCO.

Wed, 02/13/2013 - 22:17 | 3241840 williambanzai7
williambanzai7's picture

This is what Reggie calls swindle compression.

Thu, 02/14/2013 - 03:26 | 3242401 hustler etiquette
hustler etiquette's picture

The two of yous are awesome. Here is a Dos Equis.  Stay thirsty my friends

Thu, 02/14/2013 - 01:51 | 3242313 which way weste...
which way western man's picture

Good

Thu, 02/14/2013 - 01:57 | 3242326 Number 156
Number 156's picture

The only way to win, is not to play.

WOPR got it, the retail investors are getting it,  but the algo houses dont and will HFT flash crash / churn each other into extinction.

 

Thu, 02/14/2013 - 02:05 | 3242337 which way weste...
which way western man's picture

now all we need is for shitbag jew jim simons to die so we can shit on his kike grave

Thu, 02/14/2013 - 06:41 | 3242508 EZYJET PILOT
EZYJET PILOT's picture

Wankers!

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