Wednesday, January 28, 2009 at 8:44PM
Alpha generation platform vendor Deltix has extended its current offering, with the intention of becoming a one-stop-shop for hedge funds to develop quantitative strategies, back test and deploy them, then manage them in production. In response, certain retail-focused companies may also look to move into the same space, however their alpha generation capabilities are as of yet untested.
Alpha generation platforms are designed to streamline and hasten the development of trading algorithms by quantitative analysts working primarily in hedge funds, as well as on the prop desks of investment banks. They enable these analysts to respond to the challenges of intraday strategy development, which cannot rely on the overnight back testing that strategies with longer lifecycles can.
As such, Deltix is in competition with other small shops such as Alphacet and 4th Story. Aite Group, the frontrunner in alpha generation technology, also includes ClariFI (now part of Standard & Poor’s) in this category, though that company only focuses on equities and does not address intraday requirements. Its ambitions are somewhat broader, however, in that its platform already has the ability to offer execution management, so adding broker connectivity is a logical extension.
While its background is on the quantitative research and algorithm development side, Deltix’s strategy is closer to that of another competitor in its space, QuantHouse, which started life as a ticker plant/feed handler and broker connectivity provider, and later acquired an alpha generation platform development called SmartQuant in 2007.
The company’s product offering consists of two parts: QuantOffice Framework, the desktop side where an analyst develops a strategy; and QuantServer, which is where it is put into production (including time-series data warehouse), with adaptors for receiving data from sources such as Bloomberg, Thomson Reuters, Compustat, and RealTick among others. The recent addition to its core capabilities was the connectivity of QuantServer with prime brokers such as ITG.
Datamonitor perceives a trend for technology vendors from different backgrounds to address a market segment situated above the pure retail space served by the likes of TradeStation, Interactive Brokers and Genesis, yet below the much larger hedge funds.
Lightspeed Trading is to some extent moving in this direction with its plans to broaden its algorithmic offering, currently based on its proprietary HUBB protocol, by adding a converter for the industry standard FIX protocol. Lightspeed may already be used by some of the smaller hedge funds, but it is clearly moving to widen its appeal by addressing FIX users. It does not, however, plan to offer strategy development tools, arguing that it seeks to leave customers free to develop their strategies on any platform they like, and then put them into production using its technology.
It may be the case that some of the algorithmic trading platform and execution system vendors such as FlexTrade, Portware or InfoReach may also seek to address this market at some point. InfoReach is already a Deltix partner, with the latter offering integration into its execution management system via an API or the standard FIX protocol, and Deltix believes that similar work for the other vendors would not represent a major undertaking.