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Dark Pools: B-Schools Consider High-Frequency Trading As Hiring Surges

A leading business school has revealed it is considering teaching students high-frequency trading, as Europe's electronic trading firms go on a hiring spree.

Tue Aug 12 2014

London’s Imperial College Business School has revealed that it is considering teaching students high-frequency trading (HFT) techniques, which are used in controversial dark pools, because there may be “huge demand”.

G Anandalingam, the school’s Dean, said that there is a lot of HFT going on, and suggested that Imperial may need to be in that business.

His comments come as electronic trading firms have increased their hiring in the City of London, according to Astbury Marsden, a recruitment firm.

High-frequency traders in London are also increasingly defecting from investment banks, which have lost some of their lustre with MBA graduates.

It is thought that tighter restrictions on pay and looming rules banning proprietary trading have made investment banking less desirable. A raft of European business schools reported sharp drops in their students entering the sector last year.

But HFT has come under regulatory scrutiny on both sides of the Atlantic, following public debates about the practice.

“But the fact is that even today there is lot of high-frequency trading going on; lots of people trading on quantitative models,” said Dean Anandalingam in an interview with The Economist.

“So really the question we are grappling with is: if there is huge demand for those sorts of people and we are able to produce students who can do that really well, should we not be in that business?”

European Commission legislation prohibiting banks from trading on their own account could come into force in two years’ time. In the US, banks will have to comply with the Volcker rule, which bans proprietary trading, by July 2015.

At the same time, European rules curbing investment banks’ ability to pay high bonuses and force them to pay out more in shares deferred for several years have acted as a “recruiting sergeant”.

Graduates have begun looking outside the bulge-bracket banks for financial services careers.

Jon Gilbert, head of the technology and quant practice at Astbury Marsden, said: “Widespread cost cutting and pressure on bankers’ bonuses has led to the majority of investment banks putting caps on bonuses – acting as a recruiting sergeant for trading firms.”

He added that algorithmic trading, which covers a range of computing-based trading strategies, remains a growth area.

Jon said: “The pressure that investment banks are under from regulators and shareholders to reduce their risk-taking in capital markets means that the movement of personnel from the investment banks to the specialist HFT and other trading firms will continue.”

Yet this hiring spree comes at a time when such trading techniques are under much scrutiny. Regulators have recently focused on the role of dark pools – where shares are being traded anonymously – which many HFT firms operate in.

US authorities have launched an investigation into Barclays’ dark pool and sent out information requests to European investment banks including Credit Suisse, UBS and Deutsche Bank.

Imperial’s Dean Anandalingam agreed that there is a huge moral question about HFT, and said that he has a “personal dilemma”. “We want to train our students to be successful. At the same time we want to make sure their success doesn’t lead to calamities around the world,” he said.

The practice has made its way into business schools in other ways. Several high-ranking schools have released research about HFT, including the US’ Chicago Booth School of Business and Columbia Business School, and Warwick Business School of the UK.

MBAs who consider a career at an electronic trading house can look forward to rich rewards. Astbury Marsden said that staff at these firms will get paid more than their equivalents at investment banks.

A senior technology specialist joining a core technology group at an electronic trading house will typically have a base salary within the £100,000 – £150,000 bracket.

Where the individual being recruited has to leave behind unvested shares they will typically get a sign on bonus of between £20,000 – £50,000.

Discretionary bonuses are based on the overall performance of the company with 50% of base salary as a guide, Astbury Marsden said.

Bonuses can also be paid twice a year rather than once a year as in investment banks.