RenTech Goes Nuclear On High-Frequency Traders

Jim Simons has a dream and it involves atomic clocks.
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By Pumbaa (original work by Greg Robson) (File:Electron shell 055 caesium.png) [CC BY-SA 2.0 uk], via Wikimedia Commons

Pumbaa, via Wikimedia Commons

What’s faster than an irradiated cesium atom? When it comes to trading, apparently nothing, and certainly not your quaint co-located servers or ultra-low-latency systems or whatever else you’ve got that’s making Michael Lewis ornery these days. So while you were worrying about Ray Dalio’s principled robots taking over the universe, Jim Simons and his army of nerds out in East Setauket were building a weapon of mass investment destruction. Which is nice for him, since he’s apparently decided to live for a while longer.

Its invention, developed by the firm’s co-chief executive officers, Robert Mercer and Peter Brown, first sends an order to a central server, which breaks it up into multiple smaller orders. Those are then routed to venues that offer the best prices and most liquidity, much the same as brokers do now.

But before that happens, the smaller orders are sent to servers located as close to the exchanges as possible, along with instructions on the precise times they should be executed. The co-located servers sync their transactions so HFT firms won’t have enough time to identify an order on one exchange and then race to another to trade against it.

A crucial part of the system is the optical, atomic or GPS clocks that will be used synchronize those orders. Renaissance says in its application that GPS clocks are accurate to within nanoseconds and any time differences between them are “too small to be perceived” by HFT firms.

Not that it needs the help….

The Renaissance Institutional Equities Fund was up 4.6 percent last month, and 13.8 percent for the first half of the year, according to a person familiar with the matter who asked not to be named because the information is private….

Simons’s other funds have also prospered. Renaissance Institutional Diversified Alpha Fund rose 6.6 percent last month, bringing returns for the first half to 11.3 percent, according to another person with knowledge of the matter.

The firm’s newest pool, the Renaissance Institutional Diversified Global Equities Fund, gained 5.3 percent in June, the person said. It launched with $1.5 billion on April 1 after investors requested a market neutral equity stock fund. It has returned 1.7 percent this year.

Legendary Hedge Fund Wants to Use Atomic Clocks to Beat High-Speed Traders [Bloomberg]
Simons’s Renaissance Technologies Equity Fund Rose 4.6% in June [Bloomberg]

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