NEW YORK (Reuters) - Proprietary trading firm DRW Holdings on Wednesday said it agreed to buy RGM Advisors, in the latest example of consolidation among high-frequency trading (HFT) firms, which have struggled remain profitable amid rising costs and low market volatility.
Terms of the deal between the two closely held companies were withheld.
HFT firms use sophisticated technology and algorithms to trade stocks and other assets at near-light speed and are responsible for around half of the volume in U.S. equities and Treasuries, and nearly that in spot foreign exchange.
In recent years fixed costs, such as exchange fees, market data subscriptions, technology spending, and regulatory fees and fines have been on the rise for HFT firms, while a dearth of volatility has made it hard to profit from rapid-fire trades.
That has led to many smaller, and some larger, HFT firms being sold, including Chopper Trading to Chicago-based DRW in 2015, allowing the acquirer to gain scale and spread its costs across a bigger organization.
Trading firm Virtu Financial, which earlier this year agreed to buy rival KCG Holdings for $1.4 billion, last week said second quarter net income fell 89 percent from a year earlier as trading income fell across the various asset classes and geographies in which the market maker does business.
Austin, Texas-based RGM, founded in the living room of one of its founders in 2001, uses machine learning and big data analysis techniques to trade off real-time events in futures and equities markets.
“Bringing our companies together creates significant opportunity in equities trading, research and technology infrastructure, which will bolster liquidity and innovation in those markets,” DRW Chief Executive Don Wilson said in a statement.
Wilson founded DRW in 1992 and the firm has become a top player in futures markets globally. It is also active in real estate, venture capital and cryptocurrencies.
The deal is expected to close at the end of September.
Reporting by John McCrank