Getco Reported Earnings For The First Time, And It Was A Massacre

Quote from gmst:


Well the trend is not too bad if you consider the relationship of VIX with their PL. In pages 32-33 of PDF, they have mentioned VIX levels from 2007 to 2012. And it pretty closely corresponds to their PL. So, I don't think they are doing bad at all. Also, the % of their participation on NYSE, options markets, CME is holding well year on year. (this information is also on page 32-33).
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That is interesting, and thanks for pointing it out. I am a bit skeptical of the idea that a sudden bounce-back in VIX will dramatically improve their fortunes, however. 2006-9 was a period of wide-open opportunity in electronic equities trading owing to the exchanges' having bought up ECN's (ARCA and INET) and then shifted a lot of the volume to them instead of "legacy systems" like the NYSE floor and SuperSOES. Most players' code has improved a lot since then, so my guess is that future volatile periods will be a lot less profitable.

All in all, I don't think the outlook for the combined company is great. My guess is that GETCO did this mostly to get Knight's PFOF business in hopes that it generates some "synergies". Woe betide them if the SEC (and common sense) ever prevails and forces brokers to send undirected client orders to a real exchange. There's some historical explanations for how Knight got into PFOF and internalization and the fact that it's legal, but it hardly seems justifiable anymore, especially for a "new world" firm like GETCO.


It seems, as an individual trader if you can make 500k per year or a million a year, then you are better off as an individual rather than working for a firm like Getco. Unless and until, you turn out to be one of the founders - who will make 100s of millions. Check the partners equity (again page 32-33). It is growing steadily over the years. I don't know how many original partners Getco had - but my guess is each one of them is north of 200million at least.
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Agreed on being better off as a successful individual. There's also a lot of career risk in working for a firm like GETCO -- it seems a lot riskier to me than working for bulge bracket banks, tech companies, etc. Although working for GETCO is probably less risky, on average, than being an individual trader, and many of the people there have specialties that might be more transferrable to other industries (network engineering, assembler coding, etc.).
 
"I don't know how many original partners Getco had - but my guess is each one of them is north of 200million at least."


There were 2 of them- former traders at the Merc. Although they weren't as early as Louis Borsellino in recognizing the future of electronic trading, they made the leap when a relatively unknown Quant walked into their closet size office with a terrific algo they backed financially. Borsellino walked away with a meager $750,000 payout (and later unsuccessfully sued). These 2 were better at it. The rest is history...

The former CTO of Microsoft went to work for them and didn't last a year.
 
Quote from WoodyK:

"I don't know how many original partners Getco had - but my guess is each one of them is north of 200million at least."


There were 2 of them- former traders at the Merc. Although they weren't as early as Louis Borsellino in recognizing the future of electronic trading, they made the leap when a relatively unknown Quant walked into their closet size office with a terrific algo they backed financially. Borsellino walked away with a meager $750,000 payout (and later unsuccessfully sued). These 2 were better at it. The rest is history...

The former CTO of Microsoft went to work for them and didn't last a year.
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Thanks! Very interesting to know.

Interesting to know that Microsoft CTO left within a year. Maybe he didn't fit in with the culture. Do you have any further information on this quant who walked into their office. Like what was his background? As per story, he should be in top 3 people at Getco at present - maybe their Trading/quant head or something.
 
Quote from Occam:


Agreed on being better off as a successful individual. There's also a lot of career risk in working for a firm like GETCO -- it seems a lot riskier to me than working for bulge bracket banks, tech companies, etc. Although working for GETCO is probably less risky, on average, than being an individual trader, and many of the people there have specialties that might be more transferrable to other industries (network engineering, assembler coding, etc.).
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Thinking about this paragraph. Your points make a lot of sense. In finance sector, Bulge bracket investment banks offer probably least risk, compared to prop. trading firms like Getco/Infinium etc. And being an independent trader is the riskiest.

However, as one starts to succeed and puts in few years (read: 3-5 years of successful history), I would venture to say that pecking order of riskiness starts to change a bit. Compare Independent successful traders earning close to 400k per year with vice presidents in trading in bulge bracket banks who might be making 400k from their salary and bonus. An ibank trader can be fired, his department shelved, and he will have to find a new job. In case, the whole sector shrinks (like what happened to CDO guys in 2008), then he will have to start afresh. All these years, he has been successful with support of a lot of people in the bank - IT, sales, bank's clients, the brand name of bank etc. etc. He will have to hack it out as an independent from ground up.

Compare this with a successful independent trader. Let us say whatever he was doing in the market to make money stops working. He will have a whole lot of skills and experience in facing adversity which will help me find a new career quickly. More importantly, I would say that for an independent guy to first make 400k in a year will take a "lot". To be able to make this much money, he would already have built up a lot of infrastructure. So, such a guy would probably have an advantage over the ibank vice-president in case their industries suffer downtrend. So, I would say a guy like Lescor on this site probably is in a better position than a vice-president in trading at J P Morgan.

However, if things remain rosy, then an ibank trader has better shots at raising money to start his hedge fund - which an independent will find very difficult to do.
 
Quote from gmst:

Thanks! Very interesting to know.

Interesting to know that Microsoft CTO left within a year. Maybe he didn't fit in with the culture. Do you have any further information on this quant who walked into their office. Like what was his background? As per story, he should be in top 3 people at Getco at present - maybe their Trading/quant head or something.
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I was bored recently (over the summer) so i read 3, maybe 4 books on Quants and their HFT, algos etc. just for kicks. I raised my own in house quant genius (son). I'll dig it out and let you know who the individual was and the books as well. I do remember he had it all. The Getco traders were basically clueless before he showed up, but apparently astute business people for sure. Anyone who was working out of a "closet" wasn't doing all that well.

Woody
 
Quote from gmst:

Thanks! Very interesting to know.

Interesting to know that Microsoft CTO left within a year. Maybe he didn't fit in with the culture. Do you have any further information on this quant who walked into their office. Like what was his background? As per story, he should be in top 3 people at Getco at present - maybe their Trading/quant head or something.
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The 2 traders were Schuler and Tierney. The Quant was Dave Cummings.

The book is Dark Pools by Scott Patterson (worth a few hours to read).

Hope this is helpful to you.

Woody
 
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