High frequency trading (HFT) has obviously garnered an enormous amount of press over the past few years. Though HFT in various forms has existed for over a decade, it entered the public consciousness mainly after reports of large profits earned during the financial crisis of 2008. As if on cue, in the midst of the markets’ attempt to recover from that large decline, the flash crash of 2010 occurred, and HFT was widely blamed for it. Some politicians in the US and Europe have picked up on the populist theme of the anti-HFT rhetoric and have echoed the criticisms of the handful of vehement critics in the press and industry.
The only thing that is clear amid all the noise is that there is a great deal of confusion and misinformation out there about HFT. Here, we will try to learn more about what HFT is really all about, and about the merits of the arguments made against it.
What is High Frequency Trading?
The first misconception we see in examining HFT is that it is monolithic and can therefore be treated as though it’s all the same thing. One HFT may be as different from the next as one class of mutual fund is different from another. One may trade different instruments and different strategies entirely from the next. So what does this overly broad moniker really contain? I like to think of HFT as having four major categories: regulated market makers, voluntary market makers, arbitrageurs and alpha seekers.
Regulated Market Makers
A regulated market maker (RMM) is the class of HFT practitioner that has the closest analog to a traditional feature of the markets. It contracts with various brokerage firms whose clients wish to make trades, so that the brokerage routes its orders to the market maker to be executed. The RMM must agree to fulfill some large percentage of the orders (say, 90%) very quickly, and whatever is not executed is re-routed out to the marketplace to interact with other market participants. By taking the other side of these customers’ orders, however, the RMM is taking on inventory risk: it now holds positions that are the opposite of what the customers wanted to trade. If these customers make good trades, the instruments the RMM has sold are set to rise and the instruments bought are set to fall, which obviously means losses on both sides. Thus, the RMM must unload its inventory as quickly as possible, or suffer potential losses from holding these positions. This is the principal rea- son that market making has anything at all to do with high frequency trading. There is a strong need to get rid of positions as soon as possible after taking them on.
In exchange for this service and risk, the RMM receives several benefits. First, it receives a guarantee of the order flow from the brokerage, without any need to compete with other HFTs in the marketplace to fill those orders. Volume is the lifeblood for any HFT strategy: without volume, without trading, there is no hope of profit. Second, the RMM earns the bid-offer spread on any market orders it fills. It can also cross any offsetting orders (i.e., one customer wishes to buy while another wishes to sell the same instrument), which allows the RMM to earn the bid offer spread without taking any risk at all. Finally, it can choose which small percentage of orders not to fill, which mitigates its inventory risk.
Voluntary Market Makers
Voluntary market makers (VMMs) are similar to RMMs, but there are two crucial differences. First, there is no guaranteed order flow for these firms, so they must compete with the rest of the marketplace for volumes. Second, they make markets voluntarily: there is no requirement that they fill any orders. But when they do create liquidity and fill the other side of a customer’s order, they take on precisely the same kinds of inventory risk as RMMs, and therefore have the same need to exit the positions they acquire quickly. But their need for speed is compounded because of the structure of markets: specifically, let’s say that a VMM is posting a bid in the order book. This means it is set to acquire a long position if its bid is lifted. If it is near the top of the order book’s priority, then a large amount of other bidding is behind it, supporting the price after the VMM’s posi- tion has been acquired. If, on the other hand, it is further down in priority, many purchasers will have already acquired their positions before this VMM’s order is hit, and there is less bidding behind his order as well. Furthermore, it may be conditionally more likely that, if the market moves enough to take out orders lower in the stack, there will be a further deterioration in the price, further adversely affecting the VMM’s position.
While competing as a VMM is certainly difficult, a successful VMM operation still generates profits. In some markets, VMMs receive liquidity provision rebates that can generate significant profits. In addition to this, they have the same opportunity to earn the bid-offer spread on the inventory they acquire. Furthermore, unlike RMMs, VMMs have the option to stop providing liquidity at any time in any or every ticker. Indeed, it was the decision by some VMMs during the “flash crash” of May 2010 that led to the criticism that HFT practitioners do not provide liquidity when it is most needed (we will address this further in the second section of this article).
The word arbitrage connotes riskless profit. This has obvious appeal, and is equally obvious to be hard to come by. In order to qualify as a true arbitrage, a trade must capture an inefficiency in the marketplace that causes the price of an instrument (or derived version of the instrument) to be different in different locations (e.g., exchanges) at precisely the same moment. The arbitrageur sells the relatively overpriced one and buys the relatively underpriced one, so that when they converge, he reaps this profit. The most common form of HFT arbitrage is index arbitrage. This is a strategy that compares the value of an index to the value of the constituents of the same index. Take an imaginary futures contract on an index that contains two instruments at a 50/50 weighting. The index can be priced either directly in the futures contract, or indirectly by taking the value of each of the constituents and multiplying that value by the weight (50% each, in our example). Because the index trades separately from its constituents (sometimes on different exchanges), the prices of the index traded as a whole versus the index that can be created synthetically by buying its constituents in the correct weighting can and do diverge by small amounts and for short amounts of time. To implement this strategy, the need to be fast exists because the profit opportunity is extremely fleeting, and because both legs of the trade need to be done simultaneously to minimize risk. In a sense, when a RMM receives customer orders that include requests to buy and sell the same instrument at the same time, he has an arbitrage opportunity, because he can sell the instrument to one party and buy it from another at the same time, at different (advantageous) prices.
While risk-free profits are undeniably attractive, the cost of remaining fast enough to capture such opportunities is not trivial. For example, the straightest fiberoptic communications line between the CME and the stock exchanges on the east coast (used to trade index arbitrage in stocks and ETFs versus equity index futures) costs many millions per year for the handful of subscribers “lucky” enough to have gotten access to the line. And this is just one communications line; state-of-the-art servers, data, routers, net- work cards, processors, and talented software, hardware and networking engineers add up to many more millions per year, and all of the expensive equipment involved naturally becomes obsolete or second-tier relatively soon after it is introduced.
Alpha seeking HFT practitioners are the most diverse group of all of the types named so far. Rather than seeking to profit from various aspects of the market’s structure, they seek to profit from high speed implementations of their forecasts of the direction of tradable instruments. They make these forecasts based on a variety of inputs, including the prior price behavior of these instruments and the behavior of other participants in the order book. In markets where liquidity provision rebates are available, they generally also try to implement their strategies using passive execution strategies, to capture an additional source of profits. Some of these alpha seekers look very similar to VMMs, except that they are more selective about the circumstances in which they will provide liquidity, preferring to focus on situations which they forecast will be in their favor.
To be competitive in this space, the requirement for speed depends greatly on the type of trading strategy being employed, but it is equally important to possess the ability to forecast with enough accuracy that the strategy being implemented is profitable. It’s one thing to have fast computers and smart programmers. It’s another entirely to be able to forecast the near-term movements in a market, and without sufficiently accurate forecasts, an HFT is merely implementing a bad idea at high speeds.
Separating Truth and Myth in the Criticisms of HFT
The arguments against HFT generally ignore the differences between the various types of HFTs. The critics often confuse various elements of market structure with the practice of HFT. For example, flash trading was banned not very long ago, but it was a practice introduced by traditional market makers, before HFT existed, and has nothing to do with HFT specifically. The criticisms of HFT seem to gravitate around four major ideas. According to detractors, HFT:
1. represents unfair competition, creating a two-tiered system of “haves and have-nots;”
2. manipulates markets and/or engages in front-running others;
3. causes structural instability and/ or creates additional volatility in markets;
4. has no social value.
I contend that each of these arguments is misdirected, incorrect, or even fascist. Yes, I said it: fascist. But we’ll come to that later. I’ll go through each of these arguments in detail, and in order.
Does HFT Represent Unfair Competition, or a Two-Tiered Marketplace?
In 2009, Andrew Brooks, head of US equity trading for T Rowe Price said, “But we’re moving toward a two-tiered marketplace of the high-frequency arbitrage guys, and everyone else. People want to know they have a legitimate shot at getting a fair deal. Otherwise, the markets lose their integrity.” The idea is that superfast computers, algorithms and telecomm setups, are all very expensive and unavailable to the average person, and they create a two-tiered system where HFTs have a huge advantage. The problem with this argument is fundamental and fatal. At essence, the idea is that people who are smarter, and who invest capital into expensive infrastructure that makes them better able to compete, have an unfair advantage over everyone else. Really? Doesn’t Warren Buffett, have an unfair advantage over everyone else by being earlier to the table than you on a good idea? If he has extra access to information, or even if he simply has analysts who do a better job of processing information, does that mean he has an unfair advantage? The New York Yankees can afford to pay any player any amount they want to in order to acquire his services, thereby building a more talented team than others. Do they have an unfair advantage? Is it still unfair when they spend $200mm in payroll and don’t win the World Series? If an F1 racing team has better funding to hire better drivers and engineers, engage in better R&D, and they end up winning more races, is that unfair? No, it’s not unfair, it’s capitalism at its best.
Capitalism is fundamentally about this: if you are willing to take some risk, you have a shot at reaping some reward. What would be unfair is if some people were being prevented from taking such risks and having such opportunities. And that’s assuming that we’re talking about some- thing that is of unlimited supply. If supplies of resources are limited, then simply being late to the game is a sufficiently good reason to be very fairly left out of an opportunity. I’m not saying that there exist no facets of HFT that are unfair (very good arguments can and have been made about flash trading and naked sponsored access), but to label the activity in general as unfair is plainly wrong. Let’s see why.
I. Investment in the massively expensive infrastructure does not guarantee success. Many HFTs have sunk millions of their and investors’ moneys into infrastructure and have absolutely nothing to show for it except red ink.
II. The markets are more egalitarian today than they ever have been in their history. Period. In the early days of Wall Street, firms who were more proximate to the physical exchange had superior speed and access advantages. Then, advantage went to those that had telephones before others. And so on. Do you think the spread in advantage between JP Morgan and the average guy in the Midwest was bigger in 1929 or in 2009? In 2009, the advantage of Getco, among the very fastest in the HFT world, over the average online brokerage customer was on the order of a fraction of a second. How much can happen in that short an amount of time, really? Compare that with the advantage of a firm that has personnel on the exchange floor, trading in real time, while end investor reads end-of-day prices the next morning in the newspaper!
III. Investment in good real estate, in good technology, smart people, and other sources of advantage are risky. If good outcomes are achieved, they should not be looked at ex-post as being unfair. No one is precluded from securing the training and risk capital needed to acquire the advantages that exist in HFT, and if they are so precluded, it’s a deeper problem in our society. But this is not something for which HFT should be derided.
IV. Finally, to succeed in HFT, as mentioned earlier, you need a lot more than money to spend on good hardware and telecomm lines. You have to be pretty damned smart. You have to be able to outsmart a lot of other people who are similarly armed to the teeth with fast technology, and you also have to outsmart a lot of other people who maybe aren’t that fast, but who can do extremely deep analysis. Would you want to be on the other side of Warren Buffett’s or Julian Robertson’s trades?
So in truth, it’s hard to see any merit in the idea that HFT is unfair or creates a two-tiered marketplace. HFTs do have some speed advantages over the average person, but then again, so does every person with an above-average IQ, or even an above average expenditure of time and money on analysis of investment or trading decisions.
Do HFT practitioners manipulate the markets and/or front-run slower participants?
This argument seems to have its roots in the case of Goldman Sachs sending the Feds after a former employee who was accused of stealing code. In their statements about the sensitivity of the code that was alleged to have been stolen, the indubitable Goldman stated “there is a danger that somebody who knew how to use this program could use it to manipulate markets in unfair ways.” The arguments point to such obscene practices as “quote stuffing,” which involves placing and canceling huge numbers of orders in order to confound others into making mistakes. Another favorite of the critics is “bullying investors into selling positions and then disappearing,” which usually doesn’t get further explanation and is simply left to be self-evident. And finally, HFT is accused of allowing for outright front-running of hapless, innocent investors. As far as front running, generally at most one anecdote follows, usually the one about shares of Broadcom, around the time it was announced to be target of an acquisition by Intel. To front-run someone is to use knowledge of their order to buy or sell to perform that same action before they have the opportunity to do so. In the world of HFT, this is nearly impossible. The practice of flash trading actually made it possible, and it is fair and right that flash trading was banned. However, flash trading has its origins in human trading, where it remained legal, but obscure, until 2006, when the DirectEdge ECN allowed this practice among computerized traders.
But, getting back to front-running, HFTs aren’t looking at customer orders and then deciding to front-run them. Many HFT shops (the alpha seekers) are simply forecasting the future direction of some security and are placing trades to capture profits if they are correct. Admittedly, they are forecasting into the extremely near-term future, but they are in no way getting information about others’ orders before they go out to the market. In some cases they are responding to such orders, but that’s what most traders have always done, with or without computers. Others (arbitrageurs) are reacting to fleeting inefficiencies caused by others’ orders to reap profits. Some are voluntary market makers, but as has been pointed out by others, and as will arise again in our next topic, they are not regulated market makers. They do not see orders before those orders hit the market. They simply respond to those orders once they are made available. An important subset of HFTs are regulated market makers, who actually see customer order flow and have requirements to provide liquidity on a minimum portion of that order flow. Ironically, it is here where front-running is actually theoretically possible, in contrast to the other scenarios just mentioned. But to my knowledge, not one instance of abuse has actually ever been prosecuted against an HFT. By contrast, human brokers have repeatedly been successfully prosecuted for this illegal activity. Should we ban human brokers?
Focusing now on manipulation, Trillium Capital was actually fined $1mm by the SEC for quote stuffing, and there is in any case no doubt that this prac- tice does exist. But the question is, should someone using a powerful tool for evil purposes bring judgment on himself or on the tool he used? Should butcher knives be banned because someone uses one in a murder? Should speculative trading be banned because the Hunt brothers cornered and manipulated the silver markets beginning in the 1970s (without the use of any technology more sophisticated than a telephone)? For that matter, shouldn’t telephones be banned, since they can and have been used for such evil purposes?
This is another vapid argument that depends on a logically inconsistent application of a principle. When it’s computers, a single example, or even the whiff of the possibility of an example, leads to cries that the problem must be stopped. At all costs and immediately. When it’s a human using any other tool for evil purposes, then it’s the human. It’s true that computers are powerful tools, and that the more powerful a tool is, the greater amount of damage (or good) that it can do. But while that calls for scrutiny and perhaps regulation, it does not call for the banning of the use of powerful tools.
In general, HFTs are not particularly evil people. They stay well within both the rules of the markets, and the boundaries of common ethics and good sense. They often self-report any irregularities caused by their trading to the authorities. That the powerful computers and fast communication lines they possess might be used to manipulate the market doesn’t mean that legitimate activities undertaken with these tools must be stopped. People should be prosecuted for manipulation, front-running, and other bad behaviors in the markets. But there has been no evidence that computerized traders are especially guilty of such activities, and there is certainly no logic to a call to curb their activities because of a few examples of corruption.
Let us remember that some people have to be told what’s right and wrong, and they have to be punished for ignoring these facts. We Americans had to be told it was wrong to hold slaves, to force our children to work as coal miners and chimney sweeps, and so on. That doesn’t make farming or all farmers bad. It doesn’t make families or all parents bad. It unfortunately makes regulations and their proper enforcement absolutely required, because otherwise some people will go too far. Even with good regulations and enforcement, this still happens. But there’s no cure for that.
Does HFT cause market volatility or create structural problems in the markets?
Occasionally, computer software has glitches. When one of those glitches leads to millions of erroneous orders, causing huge instability in market prices, people feel like they should be worried. Furthermore, even without the presence of bugs in someone’s code, events like the “flash crash” of 2010 lead to serious speculation that HFTs are to blame for extreme market volatility. Indeed, it remains fairly widely asserted that the flash crash was a computer-driven event, despite both an abundance of evidence to the contrary and none in favor of such a theory. Even a SEC report on the event, which exonerated HFTs about as clearly as could be done by a government report, made no dent in the perception that HFTs were to blame.
Aside from the flash crash, other events have not helped the PR for HFT. A computer glitch in October 2010 on the Arca exchange led to an apparent 10% drop in the S&P index after the market closed. Note that this was a glitch at the exchange, not with a trader, yet it led to renewed calls for an end to HFT. Infinium, in August 2010, was probed for a computer glitch in its HFT programs that led to a $1 increase in the price of crude oil in about one second. So are HFTs responsible for instability and volatility?
As was the case with the arguments already discussed, HFTs are being slammed by accusations that can and should be equally applicable to other forms of trading. For every HFT glitch, there is a Mizuho securities trader, who accidentally sold 600,000 shares of a stock at 1 yen each, instead of 1 share at 600,000 yen. Not to pick on the Japanese, but another “fat finger” error only a few months later had another trader buy 2,000 shares of a stock that traded at 510,000 yen, instead of 2 shares, costing his firm $10 million in losses. One article from the Financial News, a Dow Jones publication, from March 2007 listed 10 human-driven trading errors of breathtaking scope, including one for more than $100 billion worth of stock in a European pharmaceutical, another involving a trader whose elbow touched an “instant sell” key on his keyboard, leading to massive futures order in French government bonds, another stock in Europe which had a careless order worth more than $10 billion, another where someone wrongly entered the 6-digit SEDOL identi- fier for a stock in the “size” field of an order, leading to a massive order, and so on.
Can HFT cause market problems through glitches? Absolutely. But so can a lot of other things that aren’t HFTs. No one is talking about banning human traders because they often screw up spectacularly. Why should we have a double-standard for computerized traders? Regulation is useful here, and there should always be repercussions for costly and careless errors. But that sort of ex-post enforcement seems perfectly legitimate given the total lack of other valid options.
As to whether HFTs cause volatility even in the absence of glitches, this is a somewhat different story. Here, I first have to ask what the problem actually is with volatility. If long-term investors are truly long-term, why should they care about a frenzy of activity in which the market drops by 10% and then recovers almost entirely a few seconds later? Why should they care about a bug at ARCA that marked down the value of the S&P 500 index by 10%, especially given that any trades done at that price were canceled? The only reason seems to be that we somehow can’t be seen to be causing even heartburn to a long-term investor.
Fine, but what about the 1929 market crash that kicked off the Great Depression? What about the spike in inflation and bond yields that crushed most assets in the 1970s? What about the 1987 stock market crash? What about the decades- long stagnation in Japan’s economy and capital markets? What about the 1998 LTCM / Russian-driven crash? What about the dot-com bubble, and the nearly 50% decline in stocks that took years to recover? What about the financial debacle of 2008, from which we still haven’t fully recovered? What about the problems in Greek and other Euro-zone sovereigns? Aren’t these both larger-scale and more important to concern ourselves with? Did computers cause any of these really serious problems?
Now a word about the flash crash. In case you haven’t read the SEC report, high frequency traders, except, ironically, those that are required to make markets, were clearly exonerated in the report. But before the report, they were exonerated by basic common sense. The causes of the flash crash were the following:
• A combination of a market jittery from a brewing sovereign debt crisis in Europe and a very tenta- tive economic recovery in the US, due to which the stock market was already down several percentage points for the day before the spike down around 2:40PM;
• A large (ill-advised, and fully discretionary) S&P futures order which exacerbated price movements enough to trigger further selling, for example from stop-orders;
• The inter-connectedness of instru- ments across various exchanges and instrument classes (e.g., S&P futures to S&P ETFs to the constitu- ents of these ETFs, to the names that are peers of those constituents), which led to the propagation of these volatile moves across the marketplace;
• The fragmentation of the US equity market, which itself was a pro- customer movement; ECNs increased competition with the previously monopolistic stock exchanges, but in this case led to a breakdown in liquidity once a small number of ECNs had alleged issues that triggered other liquidity pools to cease to share orders with one another in the process that normally solves the fragmentation problem; and
• Finally, and least impactfully, the extremely reasonable decision by some (not nearly all) HFT specula- tors who are not required to make markets to cease to trade or provide liquidity at a time when the market was clearly broken in several places. Note that, nevertheless, volumes during the flash crash were spectacularly high, so either non-HFT traders were doing many multiples of their normal order size, or else HFT traders weren’t as absent as is widely believed.
HFTs were not responsible for the flash crash, nor are they responsible for the very real economic problems we face cur- rently. By contrast, HFTs were undeniably instrumental in the rapid recovery from the flash crash.
Does HFT lack any social value?
This is perhaps the most disappointing argument I’ve heard against HFT. It is disappointing in the philosophical outlook it implies, and disappointing in who has furthered its acceptance by many. Paul Krugman, a brilliant Nobel-laureate economist, actually made the argument in an op-ed piece in the NY Times that HFT is generally a game of “bad actors,” and that it’s “hard to see how traders who place their orders one-thirtieth of a second faster than anyone else do anything to improve that social function.” Allow me to state this explicitly. This is a catastrophically bad point of view.
I don’t care about the fact, and it is a clear and indisputable fact despite all the rhetoric of the likes of Themis Trading and Zerohedge.com, that HFTs actually provide an enormous amount of liquidity to the marketplace, which facilitates the trading activities of a great number of other types of players that are judged as having social value by those interested in casting such judgments. It’s irrelevant. The problem is far deeper with this criticism.
The first question that is begged when someone raises the banner of social value is this: who gets to decide what has social value and what doesn’t? What is the minimum holding period for an investor to be judged favorably as improving the social function of markets? Where do we stop with this analysis of social value? With HFT? What about short-sellers, who were indeed questioned and blamed heavily for the failures of Bear Stearns, AIG and others in 2008? What about the makers of Bubble-Yum, Snickers bars, Coca Cola, cigarettes, guns, fighter jets and nuclear weapons? In short, what kind of fascist, presumptuous thing is it to even raise the question of social value? What’s the social value of an economist? What’s the social value of Lady Gaga or Metallica, or Brahms or Bach for that matter?
This is a hideous and damnable line of thinking, which leads directly to the impingement of others’ pursuits via its fallacious presumptions. As long as people do not impinge on the rights of others, they can say and do what they want.
HFT isn’t evil any more than walking your dog is evil. Nor should HFT be banned any more than walking your dog should be banned. Yes, some dog owners will let their dog crap on your lawn and simply walk away, leaving the souvenir behind. That doesn’t make dogs bad, it makes the dog’s owner sort of an antisocial jackass. That kind of person should be fined. Computers, even when used in that most nefarious of activities, trading, are programmed by people. If those people are malicious or careless, they will hurt others, and they should be prosecuted. But people have been hurting others through malice and carelessness for far longer than we’ve had computers, ECNs, or dark fiber. To take the atten- tion off of the humans that engage in the activities that are harmful, and to focus on the instrument they use to cause harm, is folly of the lowest order. Furthermore, nearly every single serious academic study undertaken has either demonstrated that HFTs have empirically added liquidity and improved price discovery, or demonstrated that there is no evidence to support the idea that HFTs have created additional volatility or decreased market efficiency. The most critical papers often remark that problems can arise from HFT, but they are quick to note that such problems have arisen before HFT, and continue to arise due to other factors since the advent of HFT. An excellent and recent summary, which is also full of further references, can be found at the Foresight Project, which was conducted by the UK Government Office for Science, using leading academics from over 20 countries (http://www.bis. gov.uk/foresight).
Despite the hot-headed talk, regulators are surprisingly thoughtful about all this. So far, every real step they’ve taken with regard to HFT has actually seemed pretty fair. Banning flash trading was the right choice. Banning naked access is also something I support wholeheartedly. The SEC’s report on the flash crash was even-keeled, pretty accurate, and placed the responsibility (not the blame, which is something needed when there’s a real disaster) more or less in the right camps.
I don’t care much about the bluster in the press. I’ve been involved in hedge funds for over 15 years now, and when I got started, few knew what a hedge fund even was. When they did, it was in the form of vilification (Soros for attack- ing Asian currencies, LTCM for nearly destroying the financial markets, and so on). We get paid pretty well, and if not being liked by someone who trusts what he reads in the news to be the whole story is the cost of that compensation, I’ll take that trade every day. I only hope that those with the power to actually make changes continue to take constructive steps, rather than heeding the biased and/or uninformed voices of a very loud minority with regard to HFT.
Some ideas about such constructive steps, with regard to HFT regulation, include:
• examining and closing the loophole for naked access that still exists for broker-dealer entities who are exchange members, which solidifies the structural advantages enjoyed by the largest HFTs at the expense of smaller entrepreneurs;
• requiring more transparency into how “real estate” in colocation facilities is offered and priced to various clients; or
• creating better solutions to the tradeoff between the fragmentation caused by ECNs versus the monopoly power of exchanges without the competition and consumer benefits ECNs bring.
Rishi K Narang is the Founding Principal of Telesis Capital and man- ages Telesis’ investment activities. He is a leader in quantitative trading and a veteran in the hedge fund industry. Prior to found- ing Telesis, Rishi was co- Portfolio Manager and a Managing Director at Santa Barbara Alpha Strategies until 2005. He co-founded Tradeworx, Inc, a quantita- tive hedge fund manager, in 1999 and acted as its President until his depar- ture in 2002. He began his hedge fund career in 1996 as the Global Investment Strategist for Citibank Alternative Investments. Rishi is the author of Inside the Black Box: The Simple Truth About Quantitative Trading and is a frequent speaker on the topic of quantitative trading at hedge fund conferences, universi- ties and other academic settings. He completed his undergraduate degree in Economics at the University of California at Berkeley.