Electronic Transaction Clearing (ETC) is one of the largest High Frequency Trading clearing firms in the world. Founded in 2007, ETC clears more than 4.5 billion shares a month and is responsible for almost 4-5% of the volume on the US Equities on any given day. To date, ETC is the only firm that specializes exclusively in HFT clearing.
In 1998, the SEC authorized the use of electronic exchanges, ushering in a new paradigm of trading known as High Frequency Trading (HFT). In simplistic terms, HFT deals with buying and selling stocks at extremely fast speeds through the use of powerful computers. Humans create the strategy and software, but computers operating in microseconds are what make the process come together.
With the proliferation of computing since 1998, the HFT market has exploded. The NYSE estimates that from 2005 to 2009, HFT grew by nearly 165%. Studies suggest HFT accounts for 73% of all equity trading volume on a given day. Despite the rapid growth, HFT strategies fail 90% of the time for the smaller players. Larger firms dominate the market and hinder smaller entrants from achieving profitability. The three biggest barriers to profitability are computing requirements, access to markets and exchanges, and transaction costs. Smaller firms are forced to conduct HFT through the larger firms, creating a fourth problem of bias.
ETC’s business model addresses each of the four problems facing HFT, and by doing so, levels the playing field for large and small HFT firms alike. With ETC, firms are provided with leveraged supercomputing power, access to exchanges and markets, and near-zero trading costs. All this is gained without introducing bias in the process.
In 2007, still in its infancy stage, ETC needed capital to develop into what would be the only exclusively focused HFT clearing firm. Beyond capital, ETC also needed guidance and a strategy that would propel it into the next decade of high frequency trading, and the contacts, partnerships, and synergies that would facilitate this move. Through its unique deal flow pipeline, Aequitas Capital Management was introduced to ETC, and from there the partnership flourished.
Immediately recognizing the potential within the HFT market and the unique value behind ETC’s business model, Aequitas Capital Management provided early stage capital, allowing the vision of ETC to flourish and change the landscape of HFT. More important than capital however, Aequitas lent strategic oversight and experience, ensuring a lasting relationship between the two moving forward. Aequitas worked closely with the management team, ensuring disciplined approach. This balance of capital and strategy remains central to Aequitas’ core structure.