DRW

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DRW logo RGB.png

DRW
DRW logo RGB.png
Founded 1992
Headquarters Headquartered in Chicago, offices in Austin, Houston, London, Montreal, New York and Singapore
Key People Don Wilson, Founder and Chief Executive Officer
Employees More than 800
Products Pit Trading, Risk Management, Technology, Real Estate, Venture Capital
Twitter @DRWTrading
Website www.drw.com

DRW is a proprietary trading firm that trades financial instruments in the U.S. and internationally, including fixed income, energy, agricultural and equity index futures and options. Much of the firm's trading is done on centrally cleared exchanges such as CME Group, Intercontinental Exchange, Eurex, Chicago Board Options Exchange and others.

Pit Trading, Risk Management, Technology, Real Estate, Venture Capital

DRW was founded in 1992 by Don Wilson, while he was trading Eurodollar options on the floor of the Chicago Mercantile Exchange. After opening an office in London and trading on LIFFE from 1994 to 1996, he returned to Chicago to build DRW into a multi-asset class proprietary trading firm.

Over the ensuing years, and as markets migrated from open outcry to electronic trading, DRW branched out to over 30 exchanges around the world, and is headquartered in Chicago, with offices in Austin, Houston, London, Montreal, New York and Singapore.

The move to electronic trading platforms led DRW to ramp up its allocation to technology. The firm became an early adopter in automated trading strategies, including latency-sensitive trading. As of 2016, the firm's technology division has created and supported over 20 open source software projects.

In 2009, DRW began investing in real estate and later created its real estate division, Convexity Properties, which specializes in developing and repurposing existing properties.

DRW Venture Capital was established to invest in private companies focused on financial and enterprise technology. Notable investments include OpenFin,[1] Droit, RedSeal, Solarflare and Pico.

The Digital Asset Project

Digital Asset was founded in 2014 out of a bitcoin trading operation created by, and operated through, a little-known subsidiary known as Cumberland Mining & Materials.[2] About 12 of DRW's 800 employees in 2017 were involved in trading crypto-currencies, which the Financial Times said was leading the charge into the markets.[3]

The company, which uses blockchain (or "distributed ledger") technology to facilitate settlement between digital and traditional currencies, is attempting to build a database to speed up the process of trading, clearing and settlement of financial transactions. In April 2015, Digital Asset hired former JPMorgan global commodities chief Blythe Masters as CEO.[4]

Cumberland went on to take a central role as one of the top market makers in the bitcoin market, trading more than $20 billion worth of bitcoin, ethereum and other cryptocurrencies in 2017, according to DRW. [5]

The CFTC Dispute

In 2010, DRW identified and traded heavily on what it saw as a mispricing on an interest rate futures contract listed on IDCG, then a subsidiary of Nasdaq. After the market adjusted, DRW continued to make markets on the contract, but as no one else was trading the contract, the exchange's regulator, the Commodity Futures Trading Commission, viewed DRW's daily bids as a violation of its rules on market manipulation.

DRW and its principal, Don Wilson, sued the CFTC in federal court in Chicago in September of 2013, seeking a finding that the company didn’t breach derivatives trading regulations. DRW said the suit was a response to the agency’s “stated intention to bring an enforcement action.” [6]

However, the preemptive suit did not keep the CFTC from filing a civil enforcement action against Don Wilson and DRW in November 2013 for manipulating the price of the interest rate futures contract in 2011. [7] [8]

The case went to trial in December 2016 before the Honorable Richard J. Sullivan in the U.S. District Court for the Southern District of New York. The Court's decision is pending.[9]

Additional Ventures and Acquisitions

In 2010, DRW served as a founding partner in the Eris Futures Exchange, an alternative exchange that offers listed interest rate swap futures. Don Wilson is the co-inventor of Eris Exchange’s intellectual property. That year, DRW also made strategic investments in the NYSE Liffe U.S. market, which was acquired by the Intercontinental Exchange in 2013.

DRW expanded into education in August 2012, providing start-up funding for DRW College Prep in Chicago through the DRW Trading Group Foundation. DRW College Prep is a four-year public high school in the Noble Network of Charter Schools, and DRW team members provide coaching, tutoring, and mentoring for students, as well as serve on Noble's Board of Directors.

In 2013, DRW acquired Vigilant Global, a Canadian telecommunications company based in Montreal. In 2015, DRW acquired the assets of Chopper Trading.

In August 2017, DRW announced it would acquire RGM Advisors, yet another consolidation move in the proprietary trading space.[10]

In November 2017, DRW announced the open of a DRW Houston office staffed by 10 employees and focused on energy trading. The trading desk was formerly part of Martin Energy Trading.[11]

Key People

MarketsWiki Education Video, Jeff Levoff, July 2016

Jeff Levoff, Partner, DRW – Make a Market: Proprietary Trading in the Modern Era

“This is not a get-rich-quick scheme. It’s hard work to try to find positive expected value. That’s what we do every day.”

Conceptually, proprietary trading is easy. One must follow two simple steps – finding positive expected value and managing the risk of positions taken. The devil, as always, is in the details.

When Jeff Levoff, partner at DRW, began in the business, positive expected value was an easier proposition. A simple Black-Scholes based software suite would spit out theoretical values, and market makers like Levoff would actively bid below theoretical value, offer above it and – voila! – positive expected value. As markets have grown more complex and as participants have grown more sophisticated, today’s proprietary trader must think and act outside the box to find opportunity.

In this MarketsWiki Education presentation, Levoff demonstrates DRW’s philosophy using quotes from famous people and applying them to the financial markets. Be sure to watch until the end because, as the saying goes, it ain’t over till it’s over.

References

  1. New round of funding for software pledging to help bankers work together. MarketWatch.
  2. Start-Up With Bitcoin in Its DNA Stumbles on Fund-Raising Trail. New York Times.
  3. DRW leads high frequency trading charge into cryptocurrencies. Financial Times.
  4. Swaps Pioneer Blythe Masters to Lead Virtual Currency Startup. Bloomberg.
  5. Bitcoin's Trading Star s Chicago High-Speed Firm That Nods to the Grateful Dead. The Wall Street Journal.
  6. DRW Investments Sues to Forestall CFTC Enforcement Action. Bloomberg.
  7. U.S. speed-trader Don Wilson and firm charged with price rigging. Reuters.
  8. Manipulation or Brilliant Trade? The Curious Case of Don Wilson. Bloomberg.
  9. DRW makes last-ditch attempt to avoid market manipulation trial. The Financial Times.
  10. DRW to buy RGM in latest deal among high-speed trading firms. Reuters.
  11. DRW to Hire Houston-Based Energy Trading Group. BusinessWire.