Man Vs. Machine: Seven Major Players in High-Frequency Trading

High-frequency trading has grabbed headlines in the past year, but little is known about the top players in the business.

These speed-focused hotshots aren't household names such as George Soros or Warren Buffett. That's partly because of the the secretive nature of the industry, which has largely shunned the limelight, at least until recently.

Here's seven forces in the business. 

David Whitcomb and Steven Swanson

Photo credit: business.rutgers.edu|cseweb.ucsd.edu David Whitcomb (left) and Steven Swanson.

In all likelihood, the first true high-frequency trading operation got its start in the unlikely place of Mount Pleasant, S.C. What came to be known as Automated Trading Desk, or ATD, was launched in the late 1980s by a small group of finance and computer whizzes, including David Whitcomb and Steven Swanson.

Whitcomb, a finance professor at Rutgers University, had been alarmed by the failure of market makers during the crash of Black Monday, Oct. 19, 1987, when the stock market took its steepest ever one-day dive.  Convinced that computers could automate the function of market makers, who buy and sell stocks on behalf of clients, Whitcomb got in touch with James Hawkes, a former student who was teaching statistics at the College of Charleson in South Carolina. They eventually brought on a team of computer and math experts—including Swanson —and set up shop in Hawkes’ house.

Originally called Mount Pleasant, ATD tracked dozens of factors that impact stocks and rapidly calculated which direction those stocks would move. Swanson, who eventually ran the firm, came to believe that ATD’s computer-driven strategies could operate far more efficiently than a human trader. In 2007, Citigroup

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[C  Loading...      ()   ] purchased ATD for $700 million and Swanson became co-head of Citi’s global electronic trading group. He recently left the bank and is rumored to be starting up a new trading firm.

Dan Tierney and Stephen Schuler

In the mid-1990s Dan Tierney and Stephen Schuler, co-founders of high-frequency market making giant Getco, were floor traders banging elbows in Chicago’s futures and options pits. But as they witnessed the rise of electronic trading platforms all around them, they realized that they could soon be dinasaurs. In October 1999, on a Friday afternoon, they founded Getco—short for Global Electronic Trading Co.—over a handshake. They set up shop in a tiny Chicago Mercantile Exchange office lined with computers and started trading futures contracts tied to the S&P 500.

They rapidly pushed into more securities, including Treasuries, ETFs and currencies. Today, Getco is one of the most active trading operations in the world.

Dave Cummings

David Cummings

Dave Cummings is known within the high-speed community as one of the smartest market-structure minds in the world. And yet he has never worked in either New York or Chicago—the two hubs of electronic markets. Instead, Cummings runs his world-class high-frequency trading outfit, Tradebot Systems, out of a small nondescript office in Kansas City.

Cummings got his start a pit trader swapping wheat futures at the Kansas City Board of Trade in the mid-1990s. But the cererbral Cummings, who’d earned degrees in computer programming and electrical engineering from Purdue University, quickly realized that the actions of pit traders could be replicated by a computer. In short order he designed a program and started trading with it in the late 1990s.

His timing was fortuitous, as a new generation of fast-moving electronic communications networks, or ECNs, had been popping up, competing with giants such as the New York Stock Exchange and Nasdaq. Cummings started trading stocks and ETFs on networks such as Island ECN, Archipelago and Brut. To Cummings’ dismay, however, in the early 2000s, the  NYSE and Nasdaq OME

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[NDAQ  Loading...      ()   ] , rather than create their own electronic platforms, started to scoop up their rivals—NYSE Euronext

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[NYX  Loading...      ()   ]  merged with Archipelago; Nasdaq purchased Brut and then Island (which had merged with another elecronic market, Instinet). To create more competition, Cummings launched his own ECN—Better Alternative Trading System, or BATS. Today, BATS controls about 10% of U.S. stock market volume.

Manoj Narang

Photo credit: highfrequencytradingview.com Manoj Narang

Perhaps the most vocal advocate for high-frequency trading in the past year has been Manoj Narang, founder of Red Bank, N.J., trading shop Tradeworx Inc. The subject of a page-one New York Times article about the role of high-speed trading in the May 6 flash crash, Narang has forcefully argued that the trading style provides multiple benefits to everyday investors.

A math and computer expert, Narang worked at Wall Street firms such as Citibank and Goldman Sachs in the 1990s. He founded Tradeworx in 1999, initially selling trading software to retail investors. He later launched a hedge fund and in late 2008 started an ultrafast trading operation juggling S&P 500 ETFs such as “Spiders,” and about 300 stocks, at rapid speeds. Narang estimates that trading in Tradeworx’s HFT system, which has about $10 million in capital, accounts for about 3 percent of daily volume in Spiders.

Vincent “Vinnie” Viola

Photo credit: NIAF.org Vincent "Vinnie" Viola

Brooklyn-born Vincent Viola, known to friends as Vinnie, has long been a major player on Wall Street. A graduate of West Point, Viola earned his chops on Wall Street in the 1980s as a trader on the New York Mercantile Exchange. In 1987 he started a commodities trading firm called Pioneer Futures.

By the mid-1990s, he was vice chairman of the Nymex. In the 2000s, he ascended to the role of chairman and helped bring the exchange through 9/11 and the collapse of Enron. Viola stepped down in 2004 and spent his time running Pioneer and several other electronic trading operations.

In late 2008, Viola founded the International Derivatives Clearing Group, a clearing platform for interest-rate swaps. Early the next year, he started Virtu Financial, a high-frequency trading operation, in New York.

Viola also has interests outside trading. In 2004, he joined New York property mogul Bruce Ratner, among others, in the purchase of the New Jersey Nets basketball franchise.

Mark Gorton

Tower Research Capital, the high-speed giant founded by Mark Gorton, sits amid a sprawl of art houses, Chinese bodegas and exotic fashion stores just south of Canal Street in Manhattan. A serial entrepreneur, Gorton is known as something of a creative genius who just happens to run one of the most sophisticated trading outfits in the U.S.

He graduated magna cum laude from Yale University in 1988, then earned a masters degree in electrical engineering from Stanford University before taking a job with a defense contractor working on computerized speech recognition systems. After earning a degree from Harvard Business School, he took a job trading bonds for about five years at Credit Suisse First Boston.

Gorton and CSFB colleague Alistair Brown founded Tower in February 1998,  using their own money and cash from friends and family. The firm looked for small anomalies in relationships between securities. Gorton’s hunger for speed was so great that he decided to form his own brokerage to execute his trades, founding Lime Brokerage in 2000. It soon began to cater to other high-speed funds and today is known as one of the most sophisticated brokerages on Wall Street.

Richard Gorelick

Photo credit: Facebook Richard Gorelick

Like Manoj Narang, Richard Gorelick, chief executive of Austin, Texas-based high-frequency firm RGM Advisors, has been one of the more vocal defenders of the controversial trading practice.

Gorelick, who sports a law degree from the Georgetown University Law Center, helped found RGM in 2001 along with two computer software developers Robbie Robinette (a physics expert) and Mark Melton (electrical engineering and artificial intelligence).

RGM started trading US stocks but has expanded into multiple markets. The firm is known for its use of machine learning, a branch of artificial intelligence that crunches terabytes of data at high speeds in order to predict what will happen next.