You are here

Grasshopper leaps to new paradigm

Proprietary trading firm is applying its trading and technology expertise to develop an over-the-counter cryptocurrency marketplace

BT_20180709_ALPHA9_3494229.jpg
"Blockchain technology and cryptocurrencies are here to stay. My team and I are convinced that these technologies will revolutionise our world in the next decade - for the better," says John Lin.

VETERAN trader John Lin knows a thing or two about the long road to success in the financial industry.

In 2005, Singapore Exchange closed its last remaining derivative pit, going fully electronic. That was a significant turning point for many traders - switching from colourful trading jackets, shouting bids and offers, fast and furious hand-signals to the cold, digital efficiency of a mouse-click, and then lines of code.

The Bachelor of Science graduate from Cornell University founded his company - Grasshopper - during this transition, growing it into a technology and data firm, and using an algorithmic trading system to transact hundreds of thousands of orders a day across the globe.

The journey, however, was an arduous one, and chock-a-block with speed bumps.

sentifi.com

Market voices on:

"When I pulled together a team of traders, I decided to call ourselves Grasshopper, which was my nickname in school," recalled Mr Lin, who held arbitrageur and market-making roles with Chicago's First Continental Trading and Nikko Futures Singapore between 1990 and 1998.

The moniker has its roots in the 1970s western TV series Kung Fu, starring David Carradine as the character Kwai Chang Caine. Caine was dubbed "Grasshopper" by his Shaolin martial arts master, reflecting his status as an underdog and stranger in a new land, searching for his destiny.

This was not unlike how Mr Lin's business began. "We were quirky, and didn't want to be beholden to the status quo. Our vision was to become global market makers, but at that time, no one wanted to deal with us - we were often politely shown the door after a 15-minute meeting."

Embracing disruption

Over years of electronic trading, Grasshopper survived a tsunami of new technologies that would obliterate the "old ways", and cause numerous waves of disruption within the realm of electronic trades as well.

"To survive, the thresholds of speed went from "blink of an eye" to sub-millionths of a second. In fact, my team did a lot more than survive - we thrived," he added.

Today, Grasshopper remains one of Asia's few relevant proprietary trading firms. It is a crucial player and major liquidity provider in the global equity and futures markets, transacting over US$500 billion in notional value of trades every month.

Mr Lin attributes Grasshopper's success to the time-tested trader discipline of observation without ego. "Above and beyond all else, we believe in listening to the market, and what it is telling you."

And given the technology-driven approach of modern or algo trading, Grasshopper is continually investing in its people and capabilities.

"Yes, this means algo development, low latency, and Big Data, but it also means training our people with an unwavering ethos of self-imposed innovation, both continuous and disruptive," he added.

Greed and fear

As he continues to strengthen the Grasshopper team, Mr Lin is acutely aware of the pitfalls of trading, singling out ego and bias as major stumbling blocks.

"Biases are predispositions that can influence our decision-making. Not all bias is bad, but unwarranted and unconscious bias affects how we process information, make decisions, and construct strategies. We can't afford to be small-minded in our thinking," he pointed out.

Despite the advances that the human race has achieved, society is still beset by financial scandals and ineffective ecosystems. Why?

"It's because of our own tendency towards fear and greed - in other words: ego," he explained.

"To be able to change and adapt at the pace required to thrive in this ever-changing world, we need to put aside bias and ego to make the difficult decisions."

As an Asian liquidity provider of scale, with the technology and know-how to flourish in this industry, Grasshopper seeks to be a valued partner to governments and regulators, contributing to the development of markets and a healthy ecosystem in the region. This includes encouraging local talent and technological innovation, Mr Lin said.

With that in mind, Grasshopper has joined Singapore Exchange Securities Trading (SGX-ST) as a market maker, in a bid to boost liquidity and market-making capability for cash equities trading on the exchange.

"As a home-grown company, we're honoured to partner with SGX on their cash equity platform. We want to support our local market, add to the growth of market activity, and boost trading volume," he noted.

Meanwhile, Mr Lin is not one to let the grass grow under his feet - he's already gravitating towards the next tech evolution. The taekwondo black belt holder firmly believes that technology will always challenge the status quo, while addressing the under-served.

"I've been disrupted several times in my career - moving from open-outcry to electronic trading is the obvious one, but within the last decade of electronic trading, there have been multiple huge shifts, driven by innovation, regulation, or market needs.

"The tipping point is close, and once crossed, there will be no going back."

Massive shift

Preliminary signs of a superior new business paradigm are already emerging.

"We are big believers in the transformational power of blockchain technology. Some see this as stupid and hyped, but for me, it's too compelling not to partake," Mr Lin said.

"We also see a massive shift of resources and brainpower towards this area, an increasing institutional demand to trade cryptocurrencies, and a need for market-making in ICO tokens." He is referring to Initial Coin Offering, an unregulated means by which funds are raised for a new cryptocurrency venture.

"To-date, the market infrastructure is inefficient and scattered - and that is an opportunity."

Aiming to play an active role in developing a more efficient and healthy cryptocurrency ecosystem, Grasshopper is applying its trading and technology expertise to develop an over-the-counter (OTC) cryptocurrency marketplace.

It has set up a new company - Tilde - which will bring education, efficient execution and competitive pricing to the obscure cryptocurrency market.

"Blockchain technology and cryptocurrencies are here to stay," Mr Lin said. "My team and I are convinced that these technologies will revolutionise our world in the next decade - for the better."

As the trading infrastructure around cryptocurrency shifts from the fringes to the mainstream, Grasshopper plans to bring its integrity and trading expertise to these markets.

"Our goal is not only to offer outstanding execution for our clients, but to help build sustainable, liquid markets based on a new - and sound - market structure. It is through Tilde that we, together with our clients, will invest in this future," said Mr Lin.

"The status quo is already a 'dead man walking'."

  • This is an excerpt from SGX's Alpha Chronicles, a column that features traders and asset managers in the financial industry. Previous editions can be found on www.sgx.com/research