The Real Message of Virtu and KCG Merger

Two HFT shops merged. They were huge enterprises. A lot of people will analyze the merger using MBA SWOT analysis. I look at it a bit differently. This isn’t the first HFT merger, but it is a much grander scale than any we saw before.

It shows an industry that is mature.

The easy money in HFT has been made. Starting a ground up HFT shop is not a cheap undertaking like it used to be. It’s not just the talent that is expensive, but the technological arms race isn’t cheap either. The merger just made every existing HFT shop more valuable.

There is another undercurrent though that is going to play out. Already it’s starting to manifest itself in pockets. The people that make the engine run in HFT shops aren’t MBA bankers. They are geeks. Engineers. Some of the most talented in the world. At some point, some of them get tired of making the code go faster.

They are starting to squeak out of the industry, looking for new opportunities. Some are looking for roles inside companies where they have more management responsibility. They are looking to be executives. Others are looking to start their own company. Still others are looking to be a CTO at a startup where they could own a chunk of equity.

They can self fund in a lot of cases. They have been around the block. Merging HFT shops with a maturing industry is a positive sign for innovation in financial services.