Barclays showed what asset sales and transaction revenue, (they call it proprietary trading), can do to in an environment where expectations are so low, down is up. They are quick to fire up the strategies which will go directly to the bottom line, and of coarse, selling things will always work. The trading side however is one where the game clock is running. Being able to continue to capture the latency factor on order and price data where opportunities exist in part by bank/brokerages own customers willingness to be hosed by the firm's proprietary trading desk.
"A technology arms race is under way in the equities and derivatives trading markets as traders – especially high-frequency traders – seek to get trades done as fast as possible. Colocation has emerged as a popular way to do this, with exchanges offering colocation and specialist data centre operators ......" Full Article
We must be near a top of sorts in this arms race since it is all one reads about. But this race is not new however and the chase to the data drough ramped up big time as far back as 2003. What is different now is reliance on it as a front running tool for brokerage/banks to generate transaction fees. As to whether it increases volatility is not quite clear. Last year the markets rallied continually in an orderly fashion with all the high frequency trading necessary to execute underlying demand and price change.
What is more important to volatility is the anticipation of higher prices and the eagerness to participate in the pursuit of what is perceived as real profitable opportunities. For 2010, you need, if possible, a clearer picture of the overall direction, which is somewhat cloudy considering the current price action of financial stocks. If it is the real deal, they will lead.
