Every day, about 10% of all orders sent to the U.S. stock market first pass through black boxes created by a 50-person technology company, Hyannis Port Research Inc. in Needham, Mass.
HPR, whose boxes do risk checks on the trade orders, is little known outside Wall Street technology departments. But it is at the center of a high-stakes contest among big banks to keep their trading arms relevant and profitable.
Wall Street stock trading has faced pressure from all sides in recent years. Clients are paying smaller fees to trade, driven by increased automation and a broad shift toward passive investing strategies that require fewer high-margin services such as research, which used to juice banks’ trading returns.
At the same time, banks’ need to invest in trading-related technology hasn’t slowed. Years since Wall Street began its shift from the old-fashioned business of brokering trades by phone, the speed and complexity required of trading desks is only increasing.
Last year the dozen biggest banks globally generated $9.2 billion in core stock-trading revenue, a third less than they did in 2009, according to the industry data tracker Coalition. But much more of that revenue is generated by electronic trading than in the past.
Some big banks, including Deutsche Bank AG, are exiting equities trading. Others are staying in largely so they can service their trading clients in more-lucrative businesses, such as lending.
While HPR’s major competitors are the in-house systems of major financial institutions, many banks are managing the rising technology needs of their trading operations by turning to HPR or other outside partners such as Pico, which connects banks to trading venues, or Cloud9 Technologies LLC, which provides voice-communication software.
HPR builds computer devices about the size of a pizza box. Banks such as UBS Group AGUBS -0.38% place them in data centers connecting to exchanges and other trading venues, and trade orders are analyzed before they are sent into the market.
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