Q&A with ARTHUR LEVITT

“The nation desperately needs an authority to handle failures.”

PAgE 17

HOW WALL STREET OPERATES

Volume 22 number 3 • February 8, 2010

UPTICK p. 3

The Next Auditors: Security Auditors

OPERATIONS p. 14

Keeping the Buck Unbroken

RULES p. 18
Getting Tax Prep Up to Form

LAST WORD p. 23

Mary Schapiro on Her First Year

SPECIAL REPORT

VANISHINg

A transaction tax could
obliterate the razor-thin
profits in high-speed,
high-turnover trading.
And subpenny pricing
would put added
pressure on
whatever margin
might be left.

Decimating the Decimal P. 8

The End of High-Frequency Trading?

P. 10

Bringing the Heat: How to Incubate High-Frequency Traders

By Shane Kite

Want to make $10 mil-
lion a year? Simple: Be able to
create algorithmic, high-fre-
quency trading applications for
bonds and fixed income deriva-
tives that make your firm lots
of money.
if your high-speed apps
can find arbitrage (read: lucre-
making) opportunities, such
as being able to pinpoint real-
time pricing discrepancies be-
tween cash and bond futures,
say, or quickly hit and lift opti-
mal treasury prices streaming
from competing inter-dealer
brokers’ electronic bond trad-
ing platforms, you’ve got a shot
at an eight-figure income.
anyone unconvinced that
algorithmic trading has come
whole hog into the fixed in-
come world should look at
the want ads. take this post-
ing—and there are many

CONTINUED ON PAGE 12

Algos Take Hold
in Fixed-Income
Markets

By Katherine Heires
You hanker to launch
your own high-frequency
trading team. But you lack
the requisite resources: a high-
performance, low-latency, al-
gorithmically-driven trading
platform, connections to market
data feeds, access to exchanges
and trading venues, invest-
securitiesindustry.com • a Sourcemedia brand
ment capital—and working
capital.
no problem, if
you fit one of the
profiles preferred
by entrepreneur-
ial support centers that have
been set up to incubate high-
frequency firms that want to
strike out on their own.
many traders in the flip-
your-portfolio-as-fast-as-
you-can set are seeking new
homes in the wake of Wall
Street disruptions, realign-
ments, debates about bonuses

and new, proposed rules from Washington, D.c., that could force large banks to shut down their proprietary trading divisions, which often engage in high-frequency trading.

“the last couple of years, we’ve seen massive dislocations in the financial markets. a lot of good people got laid off from banks and hedge funds and so, there is now a demand for incubators to help