Quantitative hedge funds are taking savings—and secrecy—to a new level.
Some of the world's biggest black box funds are moving to avoid dealing with brokers at all, by buying seats of their own at exchanges. Cantab Capital and Winton Capital each bought seats on the Chicago Mercantile Exchange, which allows them to trade for themselves on the world's largest futures market, potentially saving tens of thousands of dollars in brokerage commissions per week.
Winton, which has $29 billion in assets under management, joined the CME last July. Cantab paid more than $1 million for three seats at the exchange in September.
"We estimated what we have executed over the past year and worked our that we would make back the cost of the three seats in less than six months," Cantab's Ewan Kirk told Reuters. "There is a lot of talk about trading costs at the moment and everybody should be focused on getting the lowest possible cost."
Cantab makes at least half of its trades at the CME.
Exchange seats run in the hundreds of thousands of dollars. But the savings, for a high-frequency trader, can be huge: Members pay as little as one-fourth what non-members pay for foreign exchange futures trades at the CME, and one-tenth for U.S Treasury futures at the Chicago Board of Trade.
"It all depends on size," Kirk told Reuters. "If you're a $100 million fund with one guy in a garage, you don't care. But if you're a fund with, I'd say more than $1 billion, then I'd be surprised if you are not at least considering membership."
In addition to savings, there's another potential benefit to making one's own trades: keeping one's strategies as secretive as possible by not sharing trade information with brokers.
"The big CTAs are seriously considering it," BrightSun Group director Stephen Piron told Reuters. "It's probably to do with costs and there's an element of secrecy, as well."