Is high-frequency trading driving a wholesale transformation of the job market on Wall Street? It certainly seems that way, given recent comments by industry executives who point to the insatiable demand for programmers who can build ultralow-latency automated trading platforms. What’s more, with all the media coverage of high-frequency trading, there is a growing awareness among college graduates with degrees in computer science and experience in statistical techniques that high-frequency trading firms are forward-thinking, collaborative and often highly profitable places to work.
Meanwhile, though high-frequency trading is under the microscope at the SEC, more firms are getting in on the action. “People who used to be at Bear Stearns and Lehman Brothers are striking out on their own,” comments Graham Miller, CEO of Marketcetera, an open source software platform that is used to build automated trading strategies. “We’re seeing increases in investment in smaller hedge funds and stat arb strategies, so we do see a lot of growth in the middle and lower end of the market as well.”
But recruiters say the skills required by HFT firms are not easy to find. And that is why proprietary trading firms are recruiting on college campuses, crisscrossing the country from Cal Tech to M.I.T. Still, not all of the best and brightest minds will end up at HFT shops, says Peter Fraenkel, chief technology officer at New York-based Pragma Securities, an agency brokerage firm that develops algorithms and provides execution services for buy-side clients. People can’t even agree on a definition of “high-frequency trading,” he notes, so it’s difficult to say whether it’s taking over the job market.
“If you define ‘high-frequency trading’ as proprietary firms and market makers who use colocation and rapid high volume to eke out a marginal per-share profit that gets multiplied out because of sheer volume, people are not going to be changing their majors so they can participate in this great movement,” Fraenkel contends, though he acknowledges that there will be a “subtle rebalancing of who’s working on what on Wall Street.”
On the other hand, since these high-speed, high-volume firms are responsible for as much as two-thirds of the daily trading volume in U.S. equities, they inevitably are exercising a certain amount of clout over the direction of the markets and the skill sets required to compete. With investment banks not hiring as many quantitative analysts and financial engineers to build new exotic CDOs or CMOs, the job market for quants is tilting in favor of trading firms that conduct low-latency algorithmic trading.
According to Peter Kolm, deputy director of the mathematics and finance program at the NYU Courant Institute of Mathematical Sciences, hiring on the Street was dead in December 2008 and January ’09, and when it began to pick up slightly in February the job openings were with algo trading firms. “Whether it was proprietary trading or pure electronic trading, those were the firms that hired in February,” he recalls. While job postings rebounded slightly in April and May as other Wall Street companies started to hire, Kolm says, “For a certain period … these algo trading and high-frequency trading shops” dominated the employment landscape.
As a sign of the growing interest in working at high-frequency trading firms, Kolm relates, a three-day workshop on high-frequency finance and quantitative strategies held by the Courant Institute in June was sold out, and the institute is repeating the program this December in New York. Further, Courant is evolving its curriculum to cater to the new demands of buy-side firms, according to Kolm, who previously worked at Goldman Sachs Asset Management.
“We teach a course in algorithmic trading and quantitative strategies,” Kolm says, explaining that students are taught to work directly with tick data and learn various techniques to analyze large data sets, with an emphasis on modeling.
The question is: Will HFT firms continue to dominate hiring going forward, or is it just a bubble? “The buy side’s request for quants has continued to increase, and it will continue to increase,” Kolm asserts. “That is the way of the future.”