Proof Trading Progress Update: Q2 2022

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Proof Reading

6 min readJul 5, 2022

In our previous update, we said our most critical task for Q2 would be the knowledge transfer from our former CTO to the rest of the team. This was in fact the primary focus this quarter, and fortunately it did go well!

We now turn our attention back toward the future, and we have a slew of new initiatives to announce:

Build and release our third algo: an aggressive liquidity seeker. We currently offer two algos, VWAP and Proof, a neutral liquidity seeker/impact minimization algo. We have intentionally focused on having a small number of well-researched algos that cover the majority of our client use cases. Our existing Proof algo is designed to target near-zero market impact and on average trades around a 10–15% participation rate when unconstrained. After internal discussion and many client conversations, we believe the largest gap in our offering that we are best suited to tackle is an aggressive liquidity seeker. For example, it may target a 20–30% participation rate and be willing to have some market impact in exchange for increased liquidity capture.
WBE restructuring/certification. Now that we are back to two equal partners in the business, Allison and myself, we are pretty close to meeting all the requirements to be certified as a woman-owned business. Allison is planning to buy in to a larger stake in the broker-dealer, and then we will go for this certification. There are many steps involved: drafting up the purchase agreement and terms, obtaining prior FINRA approval via a Continuing Member Application, and then going through NY state’s WBE certification process. We hope to get all of this done by the end of the year, but there are many parts outside our control. We are hopeful that getting this certification may open some new doors, as many asset managers seek out MWBE partners, and we believe we would be the only woman-owned (non-white label) algorithmic trading firm.
Explore building a partner algo. We have had a handful of discussions with potential partners around us building a co-branded algo that leverages the strengths of both firms. There are two such partnerships in particular that we hope to explore in earnest this quarter, and we are hopeful that at least one will be worth building and releasing in production.
Upgrade the quant models behind our existing algos. Allison hired a team of junior quants for the summer, and we are hopeful that under her guidance they will identify meaningful improvements to our existing models. If so, we will deploy these upgrades to production once they are tested and ready.
Establish/formalize client quant consulting business. Our core competencies are market structure expertise and quantitative analysis, and one of our most successful tools for buy-side engagement has been conducting research studies in collaboration with individual asset managers. We have no intention of becoming a “TCA provider,” but we would like to make our execution consulting service a regular offering, not just ad hoc one-offs. For example, we would like to start advertising this service on our website and in our blog.
Migrate to AWS NY local zone. This initiative is currently gating on some limitations on the AWS side, but once those are remedied, we would like to migrate our production trading environment to Amazon’s data center in NJ. This change will dramatically reduce our geographic latencies, and while we don’t believe it is realistic for an agency broker to effectively compete with the fastest prop shops, this migration may allow us to bring even more routing logic in house, while still leveraging built-in exchange/dark pool features to protect us from latency arbitrage.

Our plans will of course change and evolve, but after spending the past few months with our heads down in knowledge-transfer mode, we are eager to get back to our roots of building and innovating!

Major updates from Q2 2022

Hired a VP of Engineering, Marcio Moreno, who officially started today. Marcio joins us from Goldman Sachs where he spent 11 years, most recently as a Co-Head of Latam Technology in their Securities Division. He was responsible for a team of 40+ people in Sao Paulo and Mexico City including Electronic Trading Strats, SRE, Equities Technology, FICC Technology and Operations Technology. In addition to his wealth of relevant expertise, Marcio impressed us with his ability to problem solve on the fly, his innate curiosity, and his eagerness to innovate and produce. He also shares our passion for transparency, and if he has his way we will likely be open sourcing some or all of our technology platform in the not too distant future. Marcio will oversee our technology efforts at Proof, and we are so excited to welcome him to the team!
Completed our CTO knowledge transfer process.
Kicked off our quantitative research summer program. Allison brought in four summer researchers, two as full-time interns and two as part-time consultants, to train and conduct research under her guidance.
Allison published a blog post describing her experience as a female founder in the finance industry (as well as her life/career leading up to this point). This is one of the most personal and moving pieces Allison has written since we started this company, and it was one of our most read and shared blog posts ever.
We received some external recognition from Chartis Research. They named Proof Trading a “Best of Breed” algorithmic trading provider (paywall) and a “Rising Star” in their inaugural Buyside 50 awards (non-paywall!). Most notably, they ranked us #1 in transparency out of the over 100 algorithmic trading firms they reviewed across all asset classes and geographies (paywall). Unlike many industry awards, these recognitions were not “pay to play,” although they did try to upsell us afterwards on sponsorship/cobranding opportunities, so they are probably somewhat fast and loose with handing out gold stars. That said, they did put us through an earnest in-depth review including a lengthy questionnaire and interview, and they also interviewed some of our clients. We are quite proud about this #1 transparency ranking (not to mention that we’re simply excited that firms in our industry are being ranked on transparency in the first place).

Goals from our previous update

Technology

Knowledge transfer from our CTO Prerak to the rest of the team. Focus on teach-ins and documentation of core technology and operational systems, and plan out our future roadmap.

(9/10) This was our primary focus in Q2, and we wrote about how it went here.

Continue work on our client portal.

(3/10) Other tech projects including the client portal mostly got pushed to the backburner during our knowledge transfer phase, but Han did make some progress in Q2 and plans to devote much more time to this project in Q3.

Complete all necessary external integrations to onboard new clients in the pipeline.

(10/10) We had one pending integration this quarter, NYFIX Matching, and we successfully completed the build and certified.

Hire 1–2 senior engineers.

(10/10) See above note about Marcio under Major Updates.

Product/Research

Continue progress on metric design and publish our current TCA framework, as well as the stats for Q4 2021 through Q1 2022 that pass our client privacy and robustness checks.

(7/10) We’re slightly late on this, but our TCA framework and early results will be coming out later this week.

Iterate on the algos based on performance and client feedback.

(4/10) Our internal evaluations and client feedback this quarter did not lead to any smoking guns for algo improvement, but nor did they present any red flags.

Sales/Marketing

Go live with at least 3 new clients and begin the onboarding process with at least 2 new clients.

(1/10) While we did have new clients enter and/or progress through the onboarding process, we unfortunately didn’t have any new clients go live in Q2. We are optimistic that we will pick back up our sales efforts in Q3.

Publish our client pricing policy.

(5/10) We haven’t yet settled on a formal pricing policy, but we did publish a piece on ways brokers monetize client order flow outside the standard collection of commissions which illustrates many of our views on this topic and describes our current approach. Our hope is that as we engage with more clients and learn their workflows and needs, we will be able to come up with a fair and fully transparent pricing model that works for everyone, but right now we’re still figuring things out on this front.

Goals for the next 3 months