October 27, 2009

It's Who You Know

Given the risks inherent in hiring new employees (as the Teza-Goldman case suggests) and the tight-knit nature of the HFT community, however, people tend to ask colleagues if they can recommend anyone -- who maybe was let go recently -- who has the right skills, sources say. And since brokers build relationships with people in different firms over time, they are another source of recommendations in the recruiting game.

"You're looking for a very unique skill set," notes Brian Tahan, VP, Advanced execution Service (AES), Credit Suisse. "If you throw this out on Monster.com, you're not going to be hit with [qualified candidates]. It's also difficult to walk into M.I.T. or Stevens Institute of Technology and ask, 'Who do you have?' "

But it's not clear that high-frequency trading firms prefer to poach talent from Wall Street firms. Several recruiters say that some quant firms, such as Getco and Renaissance Technologies, don't hire from Wall Street.

"They'd rather hire developers from outside the financial industry -- from Google, Microsoft and Amazon," says Edward Guy, managing partner at Nations Staff, a financial technology recruiter in New York. "They like those guys who work with very fast systems and are more about pure development." Guy adds that automated trading firms want people that think outside the box.

Many HFT firms believe that it's easier to teach candidates about the business than to teach them about technology. "That's not uncommon," acknowledges Credit Suisse's Tahan. The idea is that candidates who have master degrees and Ph.D.s in scientific fields have the aptitude to pick up the finance side. "Whether that's true or not, that's the reason for the decision [to go outside the industry]."

Adds Nations Staff's Guy, "The new hires don't need to know about the financial markets. It could be that they build systems for books, airline tickets or stocks. As long as you have the right mentality."

In 2007 James Simons, CEO of Renaissance Technologies and a former math professor, publically stated that the hedge fund manager only hires scientists (e.g., mathematicians, astronomers and computer scientists) to develop its automated trading strategies. "We haven't hired out of Wall Street at all," he said in a speech to the International Association of Financial Engineers, according to a Reuters report.

Supply and Demand

Another reason for looking outside the capital markets industry is simply because that's where the available technology talent is. Three years ago trading firms would have had to compete for these candidates with mortgage desks, which were hiring 50 at a time. But with the implosion of the real estate market, there now is larger supply of willing candidates. "That helps shape the strategy too -- where the availability is going to be," the executive from the Chicago prop trading firm says.

And with high-frequency trading in the headlines this past year, many more potential candidates than before are aware of the high-frequency trading specialty -- and of the profits HFT firms are raking in. "It's got sex appeal," he says of high-frequency trading. "Whereas three years ago, the high-frequency trading firms may have had a hard sell, it's probably getting easier because of the way the market has transformed."

Still, quantitative trading firms have very high standards and can be extremely selective in whom they ultimately hire or even grant a telephone interview to. "We need people who are sure bets, and we need people who will be able to hit the ground running," says Peter Fraenkel, chief technology officer at Pragma Securities, who adds that Pragma, a pure agency brokerage firm that executes trades on behalf of its clients, is highly quantitative and develops algorithms and optimal execution services. As such, the firm cannot take advantage of narrow skill sets, which can make recruiting challenging.

"It's not enough to hire somebody who has abstract math skills or happens to do well in technical subjects," Fraenkel explains. "They also have to be adept at using computers and software tools to handle the massive amount of high-frequency data that includes every single tick and quote that occurred during years of trading days. So this isn't regular database skills. Our quants have to program 95 percent of the time, whereas a developer has to program 100 percent of the time."

Going forward, with the growth of high-frequency trading and algorithmic trading strategies overall, sources expect there to be ongoing demand for technology talent. But this doesn't mean that high-frequency shops will be go on a hiring binge.

Unlike some of the biggest players -- including D.E. Shaw, SAC Global and Renaissance Technologies, as well as the proprietary trading desks of bulge-bracket firms such as Goldman Sachs, Morgan Stanley and Deutsche Bank -- most high-frequency trading shops are smaller boutique firms, so they don't need to hire that many people. For instance, Getco, the Chicago-based electronic market maker that does 15 percent of the volume in U.S. stocks, has just 225 employees, according to the company's spokesperson.

"These small businesses tend to hire more under the radar screen," explains New York University's Kolm. "It's more like cherry picking, and they tend to reach out to their informal network through contacts and asking people for references."

In fact, while there have been a number of high-profile moves lately by Wall Street executives leaving exchanges for high-frequency trading shops, some sources say the developers are becoming more important than the traders. "The more important [hires] are the guys who you never heard of, building feed handlers and other parts of systems," says one source who spoke on the condition of anonymity.

"In our world," adds the Chicago prop trader, "There are many instances where a strong developer would be more valuable than a strong trader."

The Quant Generation: With the explosion of algorithmic and high-frequency trading, demand for quantitative analysts and programmers has never been higher. To help fill this demand, many universities are gearing programs specifically to meet financial firms' needs. Advanced Trading takes a look at the Top 10 Quant Schools according to Wall Street veterans. advancedtrading.com/quant-center

ABOUT THE AUTHOR
Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in ...