Quantitative Brokers Preps Asia Expansion

New York-based introducing broker and trading algorithm provider Quantitative Brokers is planning to expand its business to Asian markets and beyond interest rate futures into commodities and cash markets, officials say.

“For us, growth means doing more of the same with new clients; adding new products as requested by existing clients; and now going to Asia,” says CEO Ralf Roth.

The firm already has clients in the region, who primarily use QB to access US markets during Asian hours—such as to trade on CME during the 23 hours per day that the exchange is open—whereas the expansion will serve those wanting to trade domestic markets or locally within the region using QB’s algorithms.

QB has an existing office in Sydney, Australia, and plans to open locations in Japan—the largest government bond market in the world—and Singapore next year, with the possibility of an office in China during 2020.

However, entering new markets requires a significant investment of time and resources, rather than simply repurposing an algorithm for a new market that has proven to be successful in another market.

“We don’t just say, ‘This algo worked in the US, let’s take it to Singapore.’ The team does in-depth research about each specific market,” Roth says, including writing its own market data feed handlers, to start collecting the market data, then completing a checklist of 10 to 15 things, such as looking closely at the data, market volumes, any problems during the trading day, and any special characteristics of the market, such as queue priority.

“For example, in Australia, trading the outright fixed income market is not such a big deal, but the way they handle the roll [the process of closing out a position in a specific month’s contract while simultaneously buying the next month’s bond] means that if you’re not doing it right, you’ll get picked off all the time. You need to get into the queue during market open, so you need to be faster than others, and you need certain infrastructure to be competitive.”

In fact, Singapore is pivotal to the firm’s expansion strategy in two ways: first as a key market within the Asia-Pacific region, and second, because the Singapore market is also an important home to commodities-related stocks.

“The other big segments of the futures markets, besides interest rate futures and indexes, is commodities, and there are large companies—typically non-financial corporations—hedging commodities exposure,” that represent a target client base for QB, Roth says. “We realize that algorithmic execution has been little-known in that market segment, so that’s the area we’re pushing into.”

“When we started talking about algorithms for commodities trading, we had to talk to the big players in the oil and gas space, who had never heard of execution algos before—they still had trading floors full of people doing point-and-click trading, whereas we knew they would be beneficial to commodities trading because of the work we had done in interest rate futures. But it takes a very long time—sales cycles can be six, nine or 12 months,” Roth says.

At the same time, the firm is looking at becoming more involved in the cash fixed income markets.

“More central limit order book (CLOB) liquidity is becoming available… and our clients who use us for trading interest rate futures are very interested in using our algorithms to access the cash markets,” Roth says. “We believe clients are better off working an order in CLOBs than simply issuing an RFQ (request for quote). More often than not, working an order over time gives better performance than someone just trading a block via an RFQ.”

The firm already has algorithms designed for trading cash instruments, and has been growing their coverage. “We did new research with our quant team, and are building a new smart order-router that is more sophisticated about which venues to trade on, and when and how to trade, by looking at liquidity, fill rates, and other factors.”