Traders Magazine Online News, June 3, 2011
Brown said the news analytic system offered by the company can determine signals that last for months or quarters, not just milliseconds. While high-frequency traders still use the service to give their computers an edge, the system is also used by traders with less fast-paced computer models, such as those engaged in statistical arbitrage.
News can move markets in a number of ways. In addition to the scheduled release of important data, such as a company’s earnings, any piece of breaking news that is important can affect a stock price. The more news there is about a company, the more volume and volatility its stock is likely to see.
However, a news analytic system can look beyond just the number of times a company’s name turns up in the media. It can see whether an article is actually about a company or if a name is merely mentioned in passing. It can also judge how substantive a news issue actually is, helping to increase the signal-to-noise ratio, according to Brown.
This type of service is even used by traders not using computer models to make decisions. “There are still a few humans among the Wall Street traders,” Brown quipped.
In addition, a news analytic system can measure the sentiment or tone of an article to see whether the news is positive or negative. Clippings services pioneered numerical ratings for articles years ago, assigning different positive and negative values to various words. A computer can now score in a second the same number of articles it once took a human an hour to score.
Thomson Reuters launched its news analytic system in 2008 at a time when many clients were trying to recalibrate their models in the wake of the financial crisis. Brown said that after traders got more comfortable with their new models, they started focusing on ways of differentiating their models from those of competitors. Inputting data from news stories became one way to make a trading firm stand out.
“News has emerged as one of these differentiated value added content sets,” Brown said. “The mere fact that it’s harder to work with than pricing data suggests that there is an advantage in it that you will have over your competitors.”
While a news analytic system can come up with a quantitative number to assign to a company, the more advanced users are parsing words themselves and coming up with their own scores, according to Brian Rooney, core product manager for news, research, message and mobile applications for Bloomberg Professional Service.
“There’s definitely great interest still in the text, not just taking purely a numerical output from us and leaving the text behind,” Rooney said. “If you can take the story and analyze it in your own way, you’ve got the opportunity at least for your own edge.”
BN Direct uses Bloomberg-generated content and content generated from press releases and public filings. For an extra fee, users can add content from sources such as The New York Times and The Financial Times.
The service can analyze how many stories are being written about a company, as well as how many on-line readers a story receives. A spike in either one can be an indication that a stock is on the move.
However, it can be challenging to decide exactly what that spike means and how to act on it. Rooney points out there’s a big difference between a story about quantifiable market data and a story about a company whose chief executive officer resigned, which could be good or bad news.
GETCO launches high-frequency trading tool for institutions
One big theme in the institutional trading world at the moment is the desire of buy-side firms to tap the leading edge tools of sell-side trading outfits.
Deutsche Bank, for example, has launched an effort to bring leading edge high-frequency tools to its clients. In a similar vein, RBC has launched Thor, a tool that uses high-frequency like techniques to ensure that buy-side orders are not picked off. GETCO has also joined the battle, offering a new product called GETAlpha, which will use GETCO’s proprietary software to execute customers’ orders in the same way as it does its own orders.
Getco touts GETAlpha as “the first product to provide the investment community with the same high-tech trading tools as a dedicated electronic, or high frequency, market maker.” It hopes to entice customers by noting that “by utilizing the same strategies as GETCO’s core market making business, GETAlpha enables institutional investors’ order executions to mimic the order execution behaviors of a dedicated market maker, thus minimizing order detection and information leakage, and providing superior executions.”
GETCO is apparently counting on customers adopting an “if you can’t beat them, join them” attitude. While many buy-side firms have complained about the tactics of high-frequency traders, they have also asked GETCO for a product that would give them the same trading capability. Now they have one.