New York-based Quantitative Brokers, an algorithmic broker and fintech, is bringing its big-data approach to trading fixed income cash and futures to Asia Pacific.
Christian Hauff, co-founder, says the firm will go live trading futures on the Australian Stock Exchange in the third quarter, with Tokyo to follow by the end of the year. Singapore and Hong Kong are slated for 2019.
“Our clients in the U.S. and Europe are eager to trade in Asia,” Hauff said.
The firm was established in 2008 by Hauff and Robert Almgren to provide the kind of quant-based best-execution models becoming prevalent in equities to bonds and fixed-income futures. Almgren heads up quantitative research, while Hauff handles business relationships.
QB is part of a trend in which bond trading, traditionally dominated by banks or venues mixing proprietary with client trading, is seeing some primary dealers adopt an agency-only approach.
Big banks are constrained by capital requirements and other regulations following the 2008 financial crisis, while investors are more sensitive to best execution. Agency-only models can provide high margins but also require brokers provide clients with demonstrable best execution. QB does this through quant research and big-data led TCA, techniques adapted from the equities market.
For QB, the easiest way to develop business has been through futures.
“Interest-rate futures are equity-esque in their market structure, and the fact that they trade on just one exchange,” Hauff said, as opposed to bonds, whose liquidity is fragmented among venues and sources, such as banks. “But they are more complex than equities, given their unique liquidity features, macroeconomic influencers and matching-engine rules.”
Hauff describes QB as a fintech because of the way it applies big data to demonstrate its value proposition to buy-side customers looking for specialist algo tools. “We compete with software companies offering algos, but they’re not specialists in microstructure research or quant.”
It began by applying equities-like lessons to the microstructure of interest-rate futures. Today QB offers agency algo and multi-broker transaction-cost analysis for U.S. cash Treasuries, as well as futures on interest rates, commodities, and agriculture and equity indexes.
The Asia expansion follows on a private-equity funding round that closed in July 2017, in which Centara Growth Partners took a stake in the firm, and Ralf Roth joined as CEO from IHS Markit, where he had been chief technology officer. The firm already has an office in London and a development team in Chennai.
Hauff, an Australian, had returned to his native country for family reasons several years ago, but now he gets to play a more direct business role in the region.
Traditionally, QB serves buy-side clients: asset managers, hedge funds and commodity trading advisors. It does no proprietary trading, so it bills itself as without conflicts of interest.
But Hauff says banks are also starting to hire QB for hedging and outsourcing some of their client-driven transactions, particularly in cash Treasuries.
“We give them better execution quality, it helps take a burden off their balance sheets, and it lets them sunset their legacy tech,” Hauff said.