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Zoltán Eisler

is Portfolio Manager of Directional Strategies at the Paris-based hedge fund Capital Fund Management where he works since 2007. He is responsible for the development of automated and OTC trading systems for various risk-based strategies. His applied research includes short-term prediction of derivative prices, option portfolio management and algorithmic execution. His recent academic work focuses on short-term liquidity effects and price impact. He holds a PhD in Physics from the Budapest University of Technology and Economics. He is the author of 20 academic publications.

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Devolution: The journey of a systematic hedge fund back to voice execution

In certain liquid financial products such as equities and futures, the 2000s have brought on the rise of systematic, fully automated trading firms that provide a large amount of liquidity through limit order books or other electronic means. Nevertheless, deals in many other asset classes including FX, credit, interest rate swaps and commodities remain opaque to a large extent. In such products the market structure is still largely asymmetric with a few major investment banks acting as liquidity providers for a large number of clients. However, in the wake of the financial crisis the landscape is shifting in two different ways. Firstly, due to capital requirements set out in Basel III and gradually coming into effect, banks are reducing their balance sheets to comply. In order to maintain liquidity other firms will have to step up to fill in the gap. Secondly, the means of trading is evolving. The traditional culture of execution on the phone or via chat rooms survives for now, but the Dodd-Frank Act has already designated a list of products to be traded on electronic platforms in the US. There is no doubt that most of the trading will be electronic in 5-10 years, but who will be the participants, and how should one trade in the meantime? The talk will discuss examples how an otherwise fully automated hedge fund may stand up to these challenges. By establishing a "trading desk" hedge funds can be more flexible than by using trading automatons. Such a decision, however, presents its own difficulties.

Last modified: 2018.11.30.