Chicago trading firm Mocho closes – Finance News

on Jul11

10 July 2017 | 4:33 pm

Mocho Trading is the latest Chicago trading firm to call it quits, after only about one year in business.

The firm, started last year by a co-founder of rival Allston Trading, Elrick Williams, buckled partly because of increased costs for electronically relayed equity and futures pricing data, and for connecting to the exchanges that provide the data.

For Chicago trading firms, low volatility in the markets in recent years has doused volumes and slowed business, but a surge in technology costs also undercut profitability. That’s led some firms to shutter while others combine or cut operations, including employees, to compete with increasingly more dominant big firms, such as Jump Trading, Citadel, and DRW Trading.

“If you want to do this arbitrage trading, you have to be on the fastest line possible,” said Jordan Iordanov, who formerly headed Mocho’s technology division. “Now, your costs have increased dramatically.”

In arbitrage trading, firms dart in and out of stocks, options and futures contracts in an effort to snatch a small price difference between two related financial instruments, often trading on different exchanges. Making that play between two different venues means a firm has to have faster electronic connections than rivals.

Over the past five years, sending that data between Chicago and New York jumped from a cost of about $5,000 to $6,000 a month, when firms were using earlier technologies, to about $200,000 a month for microwave transfers, Iordanov estimates.

In addition, firms previously could connect to one data center in New Jersey to access most exchanges in the New York area for $5,000 per month, but now firms need to tap into each exchange separately at a cost of as much as $10,000 a month per venue to stay competitive, he said. “It’s really hard for small firms,” he said. “Only the big firms can afford to do it.”

At its height, Mocho had about 25 employees. The firm stopped trading about three months ago, though operations remain for regulatory purposes, Iordanov said.

Williams and several former Allston colleagues, including Iordanov, raised about $14 million last year to form Mocho Trading, named for a remote Jamaican town where Williams’s grandfather sold dry goods.

“It’s been a rough time for automated trading firms,” said industry analyst Larry Tabb. “The two aspects of the business that drive profits are volatility and volume. Volatility is at 30-year lows and volume continues to stay near post-crisis lows.”

Tabb also noted investors’ increased appetite for passive investing, in index-based products, and a shift toward quantitative trading by shops that run on algorithms has also reduced supply and demand imbalances that contribute to volatility and volume.

The larger Chicago trading operation formerly known as Getco, and now owned by KCG Holdings, is also reducing jobs in the city as KCG undertakes a merger with Virtu Financial, according to sources familiar with the cuts.

Elrick declined to comment, other than to say for now he’s turned his attention to the TV business, and away from the trading business. He and his sister run the Los Angeles-area based Africa Channel, where Iordanov is now also temporarily working on that company’s information technology needs, though he continues to live in Chicago.

Asked whether he’ll get back into the trading business at some point, Iordanov says he’s not sure. He’s been in the trading world since 2003, and “it’s stressful,” so maybe it’s time for something new, he said.



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