GETCO & Equities Market Making

Discussion in 'Prop Firms' started by lolatency, Sep 21, 2008.

  1. How does GETCO do business exactly?

    I've gathered a few details.

    - I've googled around for them and their speaker's descriptions speak of "razor thin" profit margins. I missed one of their presentations at my undergrad school. I'm assuming they're basically high-speed stat arb and some activity in options market making. I'm tied down in NY with a profitable derivatives group, but I am intrigued by GETCO's business model and want to work in that space eventually.

    - They have an investment in BATS. BATS issued a press release not too long ago stating their transaction time dropped by 200uS. Most ECN (now Exchange?) users can't extract an edge out of 200uS if they wanted, because of the variance in message delivery times on standard routers pushing Gb/sec data across. But I have the feeling that firms like GETCO are the reason protocols like OpenBook Ultra multicast now report timestamps with microsecond precision.

    - They tried recruiting one of our quants in my group. They seem to be pushing into equity options market making.

    - I spoke to programmers who interviewed there. They were interviewed by, I think, a former professor who specialized in real-time systems. The lower level grunts were going so far as to optimize assembly instruction streams to minimize latency and increase throughput on the processing of FIX messages.

    So my guesses:

    - They're mostly a stat-arb group
    - They definitely trade FX futures
    - They provide liquidity more often than
    they take it and rely on rebates
    - They run their operations in several countries
    - They are probably the primary (perhaps most significant) liquidity provider on BATS
    - They're fast enough to still turn a profit on strategies like index arbitrage

    Any corrections, adjustments, or speculations about this company? Someone out there has to have some intel. They have a low turn over, but I know some people have been let go or have left. There's probably some details out there.

    Much thanks.
  2. their model will significantly affected by the following:

    (1) the new short selling rules.

    (2) low transactions costs at exchanges are now changing.

    (3) they were so successful in certain markets and conracts they destroyed the oppostion.

    their flaw in the plan was they thought that volumes would continue rising and there was an infinite flow of traders and companies willing to lose money against them.

    once bitten twice shy.

    most traders avoid them.

    you can spot them mile away.

    thin markets big size spoofing bid and offers.

    flickers in and out.

    ususal quant bullshit.

    their days are well numbered.
  3. Getco seems one of those places that try to keep their business secret. My assumption is their global market share is a percentage value. I think their making markets for every product around. Yes, they should be very active in FX Futures. 100+ ppl are working on a single algorithm software that might understand every programming language. Arbitrage should be one of the business.

    I second Beakers opinion. Everyone showing up their automated software to get an edge in the market trying to do what a manual trader does, just faster.
    However, algorithm model software, is still- a model, a robot told what to do by a human trader, fed by a programmer What would happen to these guys and the markets if every participant would go automated & their strategies are figured out by other algo firms-robot war. Markets change and all the automated firms take net positions hoping the strategy will pay just what a manual trader does without the need to check where the robot needs improvement so a human is always ahead here. When it comes to arbitrage, fine, speed does matter and robots are kinda fun and active 24/7, for outright strategies, no. automated software works and doesnt work, they also make mistakes and make the same mistakes again, totally automated.
  4. rosy2


    place bids and offers around the NBBO.
    cancel/replace repeatedly.
    wait for someone firm to either sweep the bids or offers resulting in you getting hit.
    then get out of you immediately.
    PnL maybe a penny after rebates

    no rocket science algos going on in the MM space AFAIK.
  5. I don't understand completely.

    So they're posting bids/asks outside the NBBO on separate exchanges and using a counterparty's sweep to quickly turn around and dump shares on the inside on whatever exchange happens to have the most liquidity?

    What's a good stock to watch this behavior on?
  6. rosy2


    nothing to do with inside or exchanges. dumb it down further.

    for example,
    the market for XYZ is 50 at 60 for 10 shares. getco or another MM model places bid/offers for 10 shares at 45 / 65. Then some market participant just wants to dump their position, so they sell 100 at the market... they sell 10 at 50 then 10 at 45 and so forth. the MM gets filled long at 45. then the market comes back to around 49.
  7. Ahh.

    How do they avoid risk in a fast moving market that doesn't come back? Buy options?
  8. nugundam


    Well, i did notice they usually aren't there in a fast moving market hence the complain for poor fills. So they probably cut their losses pretty quick in a fast moving market according to whatever algo program they are using.
  9. C99


    Yes, check don bright's opening order thread. Adapt it to calc FV for any stock all day. Adjust FV by sector. Stay balanced long and short. Spread out your bets and the mean will be your friend.

    There was a UPENN project a few yrs back that tested a few MM algos, interesting read if you find it.
  10. nitro


    I am 90 delta it is more complicated than just technology and passive MMing. They don't have just one strategy, but a multitude of them. There are definitely extremely high frequency models involved. Market taking is probably 30% of their strategy.

    Like everyone else, they evolve as the market evolves. Models are constantly being evaluated for profitability.

    #10     Sep 30, 2008