Jonathan Galore
Co-founder, Wealthfront (formerly KaChing)

Jonathan (Yonatan) Galore is a co-founder and former VP Marketing of Palo Alto based Wealthfront.com (formerly kaChing.com), a highly acclaimed and innovative investment platform.  An SEC registered investment adviser, Wealthfront makes it possible for investors to access outstanding money managers who might require a minimum investment of $1,000,000 or more outside of Wealthfront. Wealthfront also enables quality money managers to grow their businesses by accessing new potential customers in a scalable and cost effective manner.  Wealthfront has raised more than $10 million in venture capital from DAG Ventures, as well as a number of individuals including Marc Andreessen, Jeff Jordan, CEO of Open Table and former President of PayPal, and partners from Benchmark Capital, Index Ventures and Kleiner Perkins Caufield & Byers.

Ori Sarid

Manager, Synergo

Presentation: Targeting A Thousand Banks

How a small company from Yavne penetrated the US banking market by starting from targeting a thousand mid-tier banks and without millions of dollars in marketing budget

Ori will present examples from Orbograph, which is now selling software to the largest US banks, from the activity of NICE Systems in the banking market and from the experience of working with Synergo’s financial technology clients.  Ori Sarid is the manager of Synergo, a strategy and business development boutique working with financial technology companies to drive growth through business development and long term planning. Previously, Ori was VP, Investment Banking Market at NICE Systems and General Manager of Orbograph, a leading provider of check-recognition solutions to US banks.

Limor Nakar-Vincent
Director, US Business Development, BIRD ENERGY, BIRD Foundation

The BIRD Foundation’s (http://www.birdf.com) mission is to stimulate, promote and support mutually beneifical R&D between the U.S. and Israeli high tech industries. BIRD provides both matchmaking services between U.S. and Israeli companies, as well as funding covering up to 50% of project development and product commercialization costs. Prior to her U.S. appointment, Limor was the Director of the North American Department at the Ministry of Industry and Trade and a securities trader on the Tel-Aviv Stock Exchange.

FinTechIsrael event attendance is FREE due to the generousity of our sponsors, but we ask that you RSVP by registering at http://www.meetup.com/FinTechIsrael/events/16598266/ and responding YES to the upcoming Wednesday March 2nd Meetup.

Help us expand FinTechIsrael’s membership and grow our networking organization by recommending FinTechIsrael to a friend or colleague!

Event Agenda:

6:15 – 7:00: Networking & Pizza

7:00 – 7:15: Introductions

7:15 – 8:45: Presentations

8:45 – 9:00: Informal Networking

Avi Zeevi
General Partner, Co-founder, Carmel Ventures
Avi is a seasoned entrepreneur, executive and investor with more than 25 years of experience. Avi serves as a General Partner in Carmel where his investment focus includes financial technology. Avi was the first VC investor in Actimize, where he served as an active Chairman from 2001 until it was sold to NICE in August 2007, for $280 million. Avi serves on the Board of Directors of OpTier, Verix, Oversi, Clarizen, SundaySky, and Payoneer.

Renan Levy
CEO, ActivePath
Renan is the CEO of ActivePath, which provides an innovative, 2-way, actionable Email Banking solution to financial institutions including retail banks, credit card, lending, and brokerage firms. Renan has over 20 years of leadership and entrepreneurship experience, along with a proven track record of building successful companies in the technology, e-services, banking and the consumer goods fields.

Zack Miller
Managing Director, Lighthouse Capital
Zack is the published author of TradeStream Your Way to Profits: Building a Killer Portfolio in the Age of Social Media. He is also the Managing Director of Lighthouse Capital, a boutique investment firm providing wealth management services. Previously, he ran business development for Seeking Alpha, one of the first financial websites to harness the full power of social media and continues to consult in the field. Zack has been a contributor for SeekingAlpha.com and AOL’s Bloggingstocks and has been a guest on CNBC’s Squawk Box.

FinTechIsrael event attendance is FREE, but we ask that you RSVP by registering at http://www.meetup.com/fintechisrael and responding YES to the upcoming January 12th Meetup.

Help us expand FinTechIsrael’s membership and grow our networking organization by recommending FinTechIsrael to a friend or colleague!

Event Agenda:
6:15 – 7:00: Networking & Pizza
7:00 – 7:15: Introductions
7:15 – 8:45: Presentations
8:45 – 9:00: Informal Networking

Perhaps the number one take-away was that although 2009 was a year of continued dislocation for the financial service industry as a whole, financial technology firms held their own.  On a year-over-year basis revenue was approximately flat. In 2009, FinTech 100 companies generated $53.0 bn in revenue from financial services clients, compared to revenues of $52.8 billion in 2008.  As the sector adapts to rapid change related to the introduction of new regulatory mandates, its focus will certainly be on finding innovative ways to grow revenues.

The next point is that while Israel has historically been strong in telecom and semiconductors, and in more recent history, cleantech and new media, Israel should be perceived as playing a leadership role in fintech as well.  There are already three Israeli firms in the FinTech 100: Ness (ranked #51), FundTech (#66), and Actimize/Nice (a new entrant at #83).  Interesting to note is that these three firms play in very diverse areas of the fintech space: integration/consulting, financial transaction processing and anti-fraud.

I’m not sure why derivatives pricer SuperDerivatives isn’t included on the list, because with forecasts I’ve heard of $100mm sales to financial institutions, it should definitely be in the bottom quartile coming in around #75.  In addition, while the high-volume processing and low latency solutions of Voltaire’s InfiniBand and Gigaspaces’ XAP platform have uses in other industries including education and government, they are mission-critical for high-frequency trading.

While all the Israeli companies I’ve mentioned thus far are either public or mature, there is ample opportunity for Israeli start-ups to become involved in disrupting the fintech space.  This is because consistent with years past, there are few vendors on the list who are specifically known for delivering fresh and innovative products to the marketplace.   For example, while Mobile Banking and Payments is a hot theme across the payments and banking spaces, no pure-play mobile vendor appears on the FinTech 100 list.  Vendors and financial institutions alike seem to be too busy circling their wagons in an effort to adapt to a new market with new regulations, that innovation projects and R&D are too often put on hold.  Herein lies the opportunity for the best minds in both Israeli technology and finance to come together to create new products and solutions in this space.

With this in mind we co-founded social venture FinTechIsrael in September 2009 to bring together Israeli startups, industry professionals, and investors to foster innovation in the world of financial services.  To-date we’ve held six events at Tel Aviv University ranging from Financial Data & Analytics platforms to Mobile Payments to Algorithmic Trading.  Format of the events includes a keynote talk from an industry leader followed by presentations from Israeli fintech start-ups.  Prior to the presentations, attendees are invited to network over pizza and catch up with the entrepreneurs, professionals, academics and investors who comprise our growing community.

FinTechIsrael is proud of its contributions of the past year in helping to build the Israeli fintech sector which include: three early-stage start-ups getting funded, nearly a dozen job placements, and enriching the knowledge of our community.  Our plans for the future include: a FinTechIsrael sponsored “investor day” where select Israeli fintech start-ups pitch to a group of VCs and angels, workshops focusing on specific verticals within the fintech sector and the geographic expansion of our events to international financial capitals with the first being New York.

We hope you take advantage of FinTechIsrael’s upcoming November 2^nd event to get involved in our community.  Thanks to our sponsors, attendance is free but we do ask that you register via our meetup page by creating a brief profile at http://www.meetup.com/FinTechIsrael/ and RSVPing for our November 2^nd event under upcoming events.

Keynote Speaker: Errol Damelin
CEO and Founder, Wonga

Errol is a global serial entrepreneur and seasoned executive who is currently CEO of Wonga, a ground-breaking online lender backed by some of the world’s leading VCs including Accel Partners, Greylock Partners and Balderton Capital. Wonga is undoubtedly Errol’s most ambitious project yet. The company is revolutionizing the UK’s huge consumer credit market by enabling people to manage their cash flow without the need for a long-term credit card dependency. He recently received a Ruban d’Honneur as International Entrepreneur of the Year and was also named Credit Suisse Entrepreneur of the Year at the South East finals of the UK Business Awards. Errol currently resides in London.

Followed by Start-up Presentations Featuring:

Ex.Africa
Founder & CEO, Amijai Saragovi

Capitree, powered by Ex.Africa, aims to become a world leader in the provision of financial information for emerging markets.

Mr. Amijai Saragovi is a Co-Founder and the C.E.O of Ex.Africa. Among other things Amijai serves as a managing director in SOLBA, a think tank that aims to enhance the relationship between the people of Israel and Ethiopia. He gained rich experience in private equity as a consultant for Kikar Group, an Israeli private equity fund as well as an in depth understanding of global markets and information systems, acquired in Thomson Reuters. Mr. Saragovi holds a BSc in Economics from the School of Oriental and African Studies (SOAS), the University of London

CrowdSpot
Founder and CEO, Yaron Samid

CrowdSpot is a personal financial security startup harnessing the collective vigilance and wisdom of crowds for the benefit of consumers.

Yaron Samid is the Founder and CEO of CrowdSpot, a personal finance security startup powered by crowd-sourced consumer vigilance. He previously co-founded Pando, the leading P2P content delivery company and DeskSite, the net’s first PCTV network. Yaron formerly lead product management and marketing teams at Zend, BackWeb and Register.com. Yaron organizes TechAviv (http://techaviv.com…) and NY Video (http://nyvideo.org)…, two of the world’s largest grassroots startup organizations, with over 5,000 members meeting monthly in New York, Silicon Valley, Boston and Israel. Yaron chairs the TechAviv Angel Club and serves on the board of directors at Aprigo and Pond5.

FinTechIsrael event attendance is FREE, but we ask that you RSVP by registering at http://www.meetup.com/fintechisrael and responding YES to the upcoming November 2nd Meetup.

Help us expand FinTechIsrael’s membership and grow our networking organization by recommending FinTechIsrael to a friend or colleague!

We are proud to be hosting three market leaders from this space: Seeking Alpha, Lab49 and Capital IQ.

Keynote Speaker: David Jackson
CEO and Founder, Seeking Alpha
David is a former Morgan Stanley Equity Research Analyst in the Technology sector. He later went on to manage a long/short fund and explore new approaches to financial publishing, ultimately leading to the creation of Seeking Alpha. Prior to Morgan Stanley David worked in technology venture funding and macro-economics at HM Treasury in London and at the Bank of Israel.

Amir Dotan
User Experience Architect, Lab49
Amir is based in London and works as a User Experience Architect at Lab49; a technology consulting firm that builds advanced solutions for many of the world’s largest investment banks, hedge funds and exchanges. His work involves specifying user interfaces so they meet user and business needs, increase productivity and reduce human errors. Amir began his career as a web developer in Israel and quickly became interested in user interface design and usability engineering. Prior to joining Lab49, Amir worked in the Centre for Human-Computer Interaction Design at City University London as a usability analyst conducting user tests, user research and requirements analysis. Amir holds a BA in Multimedia Arts from Middlesex University and an MSc in Human-Centred Systems from City University London.

Eran Steinberg
Senior Vice President, Capital IQ
Eran is a Senior Vice President of Client Development at Capital IQ, Inc. He joined Capital IQ 10 years ago when it was just a fledgling start-up, and moved to Israel 2.5 years ago to spearhead Capital IQ’s expansion into the Mid-East region. Prior to joining Capital IQ in 2001, Mr. Steinberg served as Content Director of ALFY, Inc., a small start-up in NY that produced educational online games for young children. Before that, he served as a Center Director for Kaplan Inc., where he managed Kaplan’s northeast New Jersey center and operations. Mr. Steinberg holds a J.D. from the Benjamin N. Cardozo School of Law and a B.S. in Finance from Binghamton University.

Event Agenda:
6:15 – 7:00: Networking & Pizza
7:00 – 7:15: Introductions
7:15 – 8:45: Presentations
8:45 – 9:15: Informal Networking

Help us expand FinTechIsrael’s membership and grow our organization! Bring a friend to the next event!

Please register for the event here: http://www.meetup.com/FinTechIsrael/calendar/14498815/?from=list&offset=0

And lastly – best wishes to all of our members and followers for a Happy New Year!

On the financial media side, CNBC, Bloomberg TV, Fox Business, and a handful of others have been the stalwarts, providing this 24/7 coverage. They’ve been successful in attracting users, due to their breaking news during market hours, but have struggled in after-hours. Additionally, the content is usually quite bland, as its attempting to be a catch-all for all consumers of financial news.

Financial professionals are in need of in-depth, value-add content provided to them in a timely manner, and relevant to their specific needs. A bond trader wants to hear about bonds and bond-related news, not about retail sales and IPOs. A value investor doesn’t want to see candlestick charts. A day trader doesn’t want to listen to the same story reported over and over again, when news is breaking all day.

The future is narrowcasting. Providing users with a tailored, relevant content stream that can be accessed in real-time. Enter Reuters Insider for buy and sell side professionals.

Reuters Insider, as per their website and the NY Times article, will be attempting to offer video streams to users of their terminal products. The streams will cover content from major news networks and investment research firms, in real-time, both in video and accompanying text.

The concept is a very strong one and a potential win for Thomson Reuters, assuming they can convert enough of their users, and Bloomberg doesn’t have similar plans in mind. To their benefit, they seem first to arrive at the concept, and have signed up some good partners.

Either way, this is where media is going, and at least for the moment, is a big win for innovation at Thomson Reuters.

Also I would like to thank Iliya Talman for helping me writning this article.

Of the numerous trading market players, why is it that so few publicize their use of High Frequency Technology (HFT)?  Perhaps it is due to the stigma attached to HFT usage, and its connotation of manipulation and improper risk management.  Even thought most of the market participants decline to identify their algo usage, recent news reports exposed Goldman Sacs, Tradeworx, DRW Trading, and Penson GHCO as HFT users.  As a result, the FIA is leading the lobby for these firms in opposition of the new SEC rulings to tag HFT traders.  Nevertheless, despite the SEC’s efforts to regulate algo traders, many of the HFT firms are not based in the United States, and are therefore immune to U.S. regulations.

The HFT market specifically concentrates on equity related products: equity shares, future contracts or the options. By reducing the spread between the buyer and seller, algo trading benefits the most liquid stocks, while all other stocks display higher spreads and more volatility.

Currently, the U.S. press buzz surrounding the controversial SEC rule change regarding HFT usage has Congress struggling in a stir.  According to the United States Senator from Delaware, Ted Kaufman, who publically deplores HFT usage, “It is time to end the Wild West environment in which high frequency trading firms are unbounded by effective surveillance and the possible detection of any manipulative trading strategies.  This is a start, but much more needs to be done.”   Kaufman believes that requiring algo trading firms to comply with government regulation will discourage inequitable market manipulation, while also providing proper risk management access.

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The NASDAQ is one exchange that utilizes high frequency trading technology, offering the greatest benefits to HFT traders.  Via flash orders, algo firms capitalize on a 0.03 second head start over other market players.  And, this enormous advantage has been exposed by numerous news sources; specifically, in a recent New York TimesT article and a Wikinvest story.

Alternatively, although the NYSE does not use flash order technology like NASDAQ, other trading firms like Bright Trading LLC still manage to pocket billions using their HFT software.

But what’s the status of high frequency trading in our local market?

Unlike the NYSE and NASDAQ, the Tel Aviv Stock Exchange has not updated its exchange trading technology since 2006.  The archaic system does not allow more than 100 operations to be carried out per second, and thus milliseconds provide no added value to traders.  Along with lower trading volumes, strict regulations prohibit the use of high frequency technology on Israel’s stock exchange.  Since there are currently only 26 stock members allowed access to TASE, each member is aware of what technology is in use, and therefore an unfair advantage would be instantaneously identified and banned.

Before we start I would like to specially thank Jessica Vrazelik for bringing everything together with her special touch.

Algorithmic trading uses coded programs for entering trading orders with the algorithm deciding on various aspects of the order such as the timing, price, or quantity, thereby booking the order without a human trader intervening.  While companies who utilize this technology make up a mere 2% of the financial institutions trading on the US market, HFT companies are estimated as being responsible for over 70% of all orders being carried out, and 60% of total volume traded.  These are especially impressive statistics given the fact that the average investor is largely unaware of the scope of algo trading technologies and strategies.

A Brief History of Algo Trading

In the era before automatic trading systems, trading desks included four to eight screens and traders monitored the market while executing trades simultaneously.  Since judgment, risk and oversight were handled manually, properties were typed into the system, and only then could the orders be carried out. However, today’s algo systems no longer require a trader’s physical presence at any stage of the trade with the exception of programming and monitoring the platform.

Computerized trading of stocks first appeared on the Wall Street landscape in the 1980s, and it was blamed for exacerbating the market plunges in October 1987. Since then, computers have only grown more powerful and the algorithms that guide their trading more sophisticated. The daily flows in the financial market bring with them a slew of beneficial strategic arbitrage opportunities to exploit.  The ability to instantly adapt to the continuously changing market gives algo trading market players a competitive advantage, where even slight improvements in the algorithm or technological platform can result in a significant divergence between profit and loss.

A Brief Overview of Commonly Used Algo Trading Strategies

Algo traders apply multiple techniques when executing automatic trades and the following examples represent popular algorithmic strategies.

“Double hedging” describes a strategy that supervises pairs of assets with identical statistical correlations. Changes in market price of the given pair of assets are tracked, and once the change occurs the algorithm counts the difference in standard deviation between the two assets, and then executes the hedging procedure.  For example, “Shell” and “Exxon” shares are both in the energy sector and therefore are correlated.  Following this pair of stocks allows the algo system to determine if future profits can be made, and the possibility of profit increases as the correlation between the two assets gets smaller.  Thus, “double hedging” occurs as the correlation value goes down, presenting the opportunity to simultaneously buy one share and sell the other thereby locking in a profit.

Slicing orders into smaller sizes is one strategy that can be executed in order to minimize the market impact of a trade. “Guerrilla”, an algorithm developed by Credit Suisse, attempts to determine in real time which publicly displayed (exchange traded) bids or offers can be hit or lifted without the likelihood of causing a rise or a displacement in the stock’s trading patterns. This technique is useful for fund managers wanting to avoid moving prices against themselves while executing their trading strategy.

With “smart order routing” algorithms, liquidity from many different sources is aggregated and orders are sent out to the destination offering the best price or liquidity.  Some of these sources may include thinly traded “dark pools” of liquidity that are not traded on an exchange.  The Sniper strategy, also invented by Credit Suisse, works via executing trades primarily in dark pools, without signaling the presence of the buyer or seller to the market place.

My personal favorite is “Sniffer.” Sniffers attempt to detect the presence of other algorithms operating in the market, mimicking their strategies by identifying and exploiting the unseen opportunity or spread.

As they say – “it takes one to know one.”

Five years ago, less than 25% of U.S. stock-trading volume was generated by high-frequency or algorithmic trading, with few considering it more than a niche strategy.. That percentage has since more than doubled even as overall volumes increased, with some estimating as much as two-thirds of daily volume now stems from these funds.

This past June, Rob Curran and Geoffrey Rogow remarked upon this phenomenon in an article aptly titled Rise of the (Market) Machines that “The U.S. stock market has switched to automatic from manual transmission, forcing investors to relearn how to drive.”

 And while we as Israelis are not widely renown for our driving skills, we’re starting to get behind the wheel of this growing segment of the capital markets with the intensity of a NASCAR driver.  For starters, check out Calcalist’s Shay Aspril’s breakdown of Israeli algo activity and further comments from VC Café on the success of Final.

In this spirit, we’ve decided to hone in on algo trading and the underlying technologies that support it, making it the FinTechIsrael flavor of the month. As a lead up to our next event, we’re working on a series of short articles introducing this captivating intersection between finance and technology to the FinTechIsrael community.

We hope you tune in for more in the coming days…