A proliferation of participation strategies can create a herd behaviour that is sub-optimal, while providing huge opportunities for stat arb
players looking to legitimately take advantage of inefficiencies in the market.
He built and managed the original trading desk at the multi-billion dollar hedge fund Millennium Partners in NY, and managed/traded one of the largest Stat Arb
portfolios there for 7 years.
He says that "Trading, clearing and reporting mandates need to be in place so that market and trade data can be generated sufficiently and available publicly to make stat arb
trading accessible to most PTGs.
The report also addresses the multi-dimensional client; learning from the way prime brokers cater to statistical arbitrage hedge funds and other high-volume, model-driven strategies, notoriously sensitive to costs and speed, indicative of the sophistication being brought to the changing brokerage business model (TABB estimates that for stat arb
funds with cost-plus commission deals, net rebates account for 80% of the "commission" revenue); challenges in capturing client-level execution and research costs; the profitability matrix; and the manual process for client analytics versus a universal client analytics platform.
C) Stat Arb
Sell-Off: Selling pressure on hedge funds and bank proprietary trading desks to de-leverage and raise cash is widely believed to be the catalyst for the downward spiral in the equity markets during the first 2 weeks of August.
His background includes experience in all equity strategies including OTC options, conversions, total rate of return swaps, variance swaps, volatility arb, convertible/cap structure arbitrage, long/short stat arb
and single-name credit derivatives.