Can anyone shed light on KCG(or former Getco)?

I got a first round interview with KCG for a EQ trader role. The only thing I know about them is that they're formed by merger of Knight Capital Group and Getco,

How are these guys doing right now? Are they still the top on the prop trading industry as Getco was, or are they focusing on other stuffs as they turned a public company. Should I expect hardcore programming questions as they focus on electronic trading (which Getco was doing)?

I will appreciate any info about this company and its interview process. Thanks in advance guys.

 

I applied both online and referral by networking with my alumni. I'm don't have a Masters degree or track records; I am actually an undergraduate from a semi-target school and definitely not a rock-star programmer. Pretty interesting..

 

They are certainly not doing as well as they were before. The industry has changed (volumes and margins lower) and their model that made a killing in the 2000s is becoming less and less relevant. That said, people are leaving/they are trimming the fat in order to get back into the game again with new pushes in HFT.

 

getco pays a lot more than any BB but to get in there you'd probably need to be in the international math olympiads during highschool or a putnam fellow..

They take top notch CS/Math kids - fluency programming is essential. They also tend to look down upon corporate culture.

they work easier hours than BBs (though stress is just as high), make a shit ton more, and laugh at investment bankers who grind away building pointless models just to land a deal...

 

It's very tough to get a job there. They tend to hire math/cs whiz kids from harvard, mit, and stanford. I got to final round interviews before getting dinged. It's probably the only prop shop I would have taken over my current BB trading job.

Regarding compensation, base is NOT $200K for first-years. The year I applied, it was around $100K. No idea on bonuses, but they can get very high very quickly depending on how good you are and the profitability of your desk. It is not at all uncommon for 25-26 year olds at GETCO or Jump to make $500K/year.

 

I would be stunned if this level of pay continues. Profits are off quite a bit and that is just based off of what is publically available.

 

Over the last few years when GETCO did well, its compensation was very high. 25 year olds making 7 figures was not uncommon. Pay has come way down however with recent declines in performance. Dealbreaker's article at 2013/02/Getco-hoping-that-acquiring-knight-capital-will-bring-back-some-of-the-excitement-of-its-glory-days/ compares Getco's historical per-employee revenue and compensation to that of Goldman Sachs.

 

GETCO is a very reputable firm & used to make astronomical profits. Emphasis on "used to"

A lot of Algo Market makers are having a harder time getting a edge because of so many other players entering the mix, and the costs of overhead are huge. This isn't the kind of operation where a bunch of schmucks play around with etrade accounts, they have to pay up for the heavy machinery.

My friend's salary isn't anything too far out of line with what a banker would make given the fact most of us are getting payed less than pre-08, but she works more tolerable hours (a quant trader). As others have said they prefer to hire the creme de creme of math whiz kids from ivy league schools to their desks, so getting in would be quite the challenge.

Bonuses on the other hand are tied to group p&l, and her first year (2012) she managed to make 150k for herself.

So it's definitely a good living, but it's not some road to El Dorado. We're in a business that's akin to everyone thinking they can beat traffic by waking up an hour early, but since everyone is doing it traffic becomes just as slow.

 
massiveattack:
From news GETCO financial results look quite poor: several years of declining revenues, layoffs, etc. Anyone have an inside scoop on what's going on in there? Is it a turnaround story, cyclical downturn, or just straight-up decline?

I have a very good friend from college who used to work there. Basically, it all boils down to the disconnect between top-level management and most employees. As you know, high frequency shops tend to be very selective and only hire programmers and people with very strong quantitative backgrounds. However, the people who control everything at the top can be described as anything but... I would not go so far as to say that they are downright incompetent, but you have to realize these guys are antiquated dinosaurs (the founders are former pit traders) who would wouldn't even get passed the initial resume screen if they applied for a job at their own firm today.

The people in charge have more in common with the former college lacrosse players and jocks that dominated Wall Street trading desks in the 1980s. This is the Wall Street that Michael Lewis described in Liar's Poker, where traders made their living through "intuition" and the day-to-day work was full of chaos and screaming, swearing and pushing. Today, this kind of trader is a dying breed. The people who are filling trader roles are guys with quantitative degrees in math and computer science.

To be blunt, a company cannot hope to maintain long-term success if the people in charge do not have the core competencies or do not understand (or only have a superficial understanding) behind the technology that enables them to make money. Technology will improve and/or change. Certain strategies that used to work may one day stop working or will become less profitable. The solution is not to simply hire more programmers - one will run into the problem of diminishing returns. Rather, one needs to do an honest and fundamental reevaluation of their Company from the top down. However, if you do not have the core competencies to begin with, you will not realize where the problems are. Instead of finding a solution to the problem, your default reaction will be to throw money at the problem (e.g. hire more programmers) and hope for the best. Sadly, it is path that will inevitably lead to failure.

Of course, you have to give these guys credit for realizing the opportunity that would arise from the increasing importance and reliance of technology in trading. They got in early and hired a lot of smart people from non-traditional finance backgrounds (e.g. programmers, mathematicians, scientists). In the process, the founders and senior partners at the top made A LOT of money for themselves while the smart employees they hired - though very well compensated relative to the Street - only received a small fraction of the total value they created.

 

Based on their S4 form they hired ~100 people and expanded their balance sheet $500mm during the past year to expand non high frequency trading. While $500mm change in balance sheet is small as far as finance is concerned, it sounds like a whole lot for a firm that traditionally didn't keep overnight positions. They are also purchasing Knight, which is a somewhat overlapping but also complementary business. This sounds like a firm that realizes change is necessary and is executing upon it.

I am waiting with bated breath to see how all this plays out. If they fail, who would succeed? Technology costs are ripping higher, so small shops will have problems keeping up. And why would anyone think that other firms aren't having similar problems? It's just that this info is extremely secretive, and we all assume that they are making untold fortunes.

 

Deo: Highly disagree. Yes, the co-founders were former pit traders, but they recognized the potential of electronic trading in 1999, founded, GetCo, and now they have over a decade of managing an e-trading company. Pretty sure they're as knowledge about this market as any other executive at any other company. And you give your bias away in your last sentence, about how the non-founder employees "only received a small fraction of the total value they created" -- really, do you not acknowledge founding a new company (and paying all the costs of it out of your own pocket for the first several years, deciding the strategy, hiring the people to implement that strategy, etc) was a pretty frickin' huge part of the "total value creation"?

massiveattack: Yeah, I'm curious too. I was offered a job at Getco a year ago (comp was VERY good but I didn't take it for other reasons). The people seemed sharp, though. That was before the Knight merger and the recent S-4 disclosure. From the S-4, it looked like 2007-2009 were incredibly good (as you'd expect for a market-maker during the financial crisis) and 2010-2011 were fine (not nearly as good as the peak years but you can't expect normal times to be as good as the crisis times). But then something bad happened in 2012 and revenues fell apart. No idea why, no idea if that'll continue into next year or not.The decline in profit could mean anything (like investing for the future, accounting to make the Knight merger success look better, etc), but the decline in revenues is troubling. The real question is whether that's due to increased competition, or just unusually low VIX for the past year. Your guess is as good as mine.

 

In my case, I declined simply for the boring reason that my fiance wasn't able to relocate. Nothing more than that. The people and the company and the offer all seemed good. I have no idea what (if anything) has changed over the past year, but based solely on my experience then, I would certainly recommend speaking to them if you have the opportunity.

 

I've never heard of this group but it appears that they received backing from General Atlantic Partners. These guys are one of a handful of PE groups that I have seen invest in financial services and technology businesses (areas where you don't generally see much PE activity). I would be very interested to hear how they did in August given the carnage in stat arb land, an area in which these guys seem active. I found the following link that provides some good info but it is a bit dated and may not even be accurate.

http://blogs.wsj.com/deals/2007/04/13/trading-firm-getco-gets-big-priva…

 

The stock went down because common equity is being diluted by new capital. It's a correction; the value proposition is largely unchanged, except that Knight is now better capitalized.

"There are three ways to make a living in this business: be first, be smarter, or cheat."
 
markhobbus:
Just initiated a covered call this morning. Not a big trade but i plan on selling calls for the next few months if it does not reach my target.
Mark -- why are you doing covered calls on Knight? What strikes are you using?
 

I don't think it'll double anytime soon unless you hold for awhile and they buy back a ton. Though I bought and sold covered calls as well. >.> Small trade.

 
markhobbus:
Huge drop this morning made the price very attractive for the medium term and the increased volatility has beefed up premiums. Bought KCG at 3 and sold SEP 4 C. I will most likely roll it over a few times.
Why didn't you just sell a sep 4 put? Same payoff with one less commission (no need to buy stock).
 

I was just looking up this company this morning as well. If they fixed the bug, this shouldn't affect the long-term company performance, IMO.

I love my bananas!
 

I can confirm that they're actually recruiting. I've been contacted by at-least 2 HHs about gigs at GETCO within the last month. Not that it disproves that they're in trouble, but I would imagine they'd not be recruiting so aggressively if that was the case.

 
BazingaPunk:
I can confirm that they're actually recruiting.

Agreed. I know someone who recently got a job offer from them. This is for undergrad recruiting though...

"Rage, rage against the dying of the light." - DT
 

Getco has been in a downward spiral for the last few years. Things have accelerated to the downside this year, and that's why so many Getco employees are looking around.

The problem at Getco seem to be their inability to make quantitative strategies work. The firm is built around having manual traders 'tweak' simple ideas and them let incredibly fast infrastructure get you firs in line. This works great as long as you are first in the queue. As competition chipped away at the speed advantage, Getco attempted to buy and create quantitative models, but nothing has worked. The culture was phenomenal for taking a working model and scaling it across the world. Getco is clearly a good implementer and a poor innovator. The company still makes money, and I'm sure it will be around for a long time. It's just gong to take time til it can get some traction.

 

As a current trader in the business, I can assure you current market conditions are very difficult. Even though I don't work at Getco, models and strategies that have worked extremely well in the past are being slammed as more algos designed specifically to fight other algos are released. Obviously there are people out there who are still successful in this environment but it requires ingenuity, willingness to try new things, and luck.

 
hft12345:
As a current trader in the business, I can assure you current market conditions are very difficult. Even though I don't work at Getco, models and strategies that have worked extremely well in the past are being slammed as more algos designed specifically to fight other algos are released. Obviously there are people out there who are still successful in this environment but it requires ingenuity, willingness to try new things, and luck.

This is true, and although I do not work at Getco I'm sure they are going through some of this

 

arden what's your point? no credibility atm

recruiting not only fits with expansion but also with collapse ie ppl rush for exits, they need to hire to replace (albeit hire fewer n00bs)

also, yes this is a theme for many HFT/algo firms this year. while it remains to be seen whether things will turn around, i can confirm from a reliable source that some big MM'ing players have withdrawn from significant markets this year for similar reasons (tighter spreads, too much competition etc)

Moving tonnes of product. Making fat stacks.
 
trazer985:
The big money in options is in retail flow. Knight had this. The other companies that were interested in it, were backed financially by a company that was linked to the US gun industry. It fell apart in the sandy hook aftermath,. They lost their funding and Getco sailed home.

Source: Insider.

Interesting
Get busy living
 
Macro <span class=keyword_link><a href=/resources/skills/trading-investing/arbitrage target=_blank>Arbitrage</a></span>:
"Profit went down 82% from $139 million to $25 million."

Clear BSDs...

Maybe not anymore, but these guys used to be serious BSDs. Dealbreaker's article at 2013/02/getco-hoping-that-acquiring-knight-capital-will-bring-back-some-of-the-excitement-of-its-glory-days/ compares Getco's historical per-employee revenue and compensation to that of Goldman Sachs.

 
balladechina212:
From what I hear, Getco was strong when it started up because it was one of the first firms to prioritize using speed to win. Unfortunately, the speed game is reaching a limit and other firms are catching up, and they're not coming up with new innovative technologies/ideas anymore.

Their last innovative idea being "let's relocate closer to the exchange."

 

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