Oxstones Investment Club™Meet The Google For High Frequency Trading Machines: Selerity
Microsoft was scheduled to release its second quarter earnings after the bell on January 27, 2011. But at 2:50 PM, a full 70 minutes before the closing bell, a low latency, real-time fact aggregation and event data company called Selerity picked up the earnings report and distributed it to its clients. Volume that day picked up to 70 million shares by the last 15 minutes of trade, almost its daily average, as the stock went on a rollercoaster ride. During the session, Microsoft hit an intra-day peak of $29.46, a 2.4% gain, only to close barely up with a 0.3% gain, going on to dive 3.7% the next days. With 60% of the market dominated by high-frequency traders and automatic market makers, Selerity’s subscribers were in place to make a killing. With the Microsoft leak, Selerity, and its 27-year old CEO Ryan Terpstra barged into the data world and set it on a new path to a new future.
“Before the Microsoft leak, no one really knew who we were, I don’t think people knew the power of search and how it can be applied to this space,” said Terpstra in an exclusive interview with Forbes. Selerity is among a new wave of data firms looking to automate the process of data search, extraction, and delivery, a la Google, but quicker. Selerity’s clients involve all the top high-frequency trading desks, as well as major banks hedge funds. Terpstra was secretive about his company, putting his client count in the “10 to 50” range while noting that after the Microsoft leak, a lot of the automated market makers called him; “they were caught blindsided, and when information gets out in the market that they don’t have, they are misvaluing [sic] that security.”
Microsoft intraday chart on January 27, 2011Selerity is at the forefront of information, where data must be quickly sought, extracted, put in context, and distributed to both machine and human audiences. The Microsoft leak, not a unique instance, Terpstra said as companies like Disney, NetApp, and Transocean have had the same problem, is just a consequence of their automated process, was Selerity’s call to fame, but their business goes much farther than scanning the web with web crawler algorithms. “We are also working on natural language processing, which is very hard in micro seconds,” explained Terpstra, noting that Google’s search works in “human time, in seconds, […] we have to use cables, co-location [hardware] to bring down latency” and do it as quick as possible.
High frequency trading has been a highly contentious introduction to the market in the last decade. While many are still blaming HFT for the flash crash and distorting the markets, Terpstra takes a pragmatic view. “The impact of news is just so much quicker, but people also drive market movements, look at 50 Cent.” (On January 10, rapper 50 Cent told his 3.8 million twitter followers to buy HNHI, the stock spiked, the company gained $50 million in market cap and Fiddy went home $10 million richer, read Chris Barth’s take, Get Rich Or Die Tweetin’). “We are driving information efficiency, as machines do things only humans could do,” said Terpstra.
Geopolitical events are the next frontier. Selerity focuses on more quantitative events, such as earnings, revenue figures, margins and other such financial information. “Geopolitical events are really hard to capture, give structure, and present in a smart way,” said Terpstra. Natural language processing and auto correcting algorithms, making up a sort of “artificial intelligence,” is one of the areas which will provide value down the road, when Selerity manages to develop it in an efficient manner. Twitter and social media are another avenue his company is exploring, as social networks’ influence on life in general, and markets specifically, grows.
Selerity doesn’t release revenue numbers or disclose talks with clients. Terpstra raised $5 million in December 2008, the company announced it had become a multi-million business eight months after releasing its first product and has 22 employees in four countries.
Asked about profitability, Terpstra explained they didn’t release earnings, but noted his company was doing quite well. When pushed about a possible acquisition by a larger operation, Terpstra noted that Selerity “has lots of attractive assets, we are in continuous dialogue with various financial vendors and other companies.”
The future has always been sparked the idea of velocity, of time passing quicker. That has certainly been true of information, which, from the day the printing press was created in Guttenberg, has been on an exponential explosion in terms of diffusion. Terpstra’s Selerity is at the forefront of this process, connecting traders with information as quick as possible, and is looking to push the envelope, with natural language processing and more context. We will have to wait to see where the future takes us next.
Tags: Microsoft, Selerity