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24 Sep 2009

Prime Brokerage Services Division Launch For Hedge Funds and Investment Advisers

TradeStation Securities, Inc., has launched the TradeStation Prime Services division to fill the growing need of start-up to mid-sized hedge funds, the company said today.

TradeStation Prime Services will be co-headed by Lance Baraker and William Katts, as senior managing directors, from a new TradeStation office in mid-town Manhattan, TradeStation will also now have a full membership and direct access operation on the floor of the New York Stock Exchange to accommodate clients who make some of their trades on the NYSE floor.

"We believe that our award-winning trading platform technology, ability to provide custody and clearing, and the strength of our balance sheet will give us a strong offering to the small- to mid-sized hedge funds and investment advisers who need services no longer being provided by the larger firms," said Salomon Sredni, CEO of TradeStation Group. "This is a market opportunity for TradeStation that did not really exist until recently, and we look forward to maximizing the value we believe we can create by entering this segment of the institutional trader space."

"We are extremely excited about joining TradeStation," added Baraker. "The downfall of many financial firms in 2008 has created a rare opportunity for another custodian to enter and succeed in the prime brokerage market. William and I look forward to combining our experience and relationships built over the years with TradeStation's industry-leading technology to create a leading, powerful prime brokerage platform for the buy-side institutional trader."

Equity Market Neutral Strategy May Act as a Diversifier Across Market Cycles

Credit Suisse’s Quantitative Equities Group released a new whitepaper, “Equity Market Neutral: Diversifier Across Market Cycles,” outlining the potential benefits of an Equity Market Neutral strategy. The paper details the various types of Equity Market Neutral funds as well as the traits which have historically helped the best managers stand out.

Equity Market Neutral (EMN) funds have been generally successful in profiting from a variety of environments and have provided an effective counterbalance in diversified portfolios during periods of market volatility, such as following the Lehman Brothers bankruptcy in September 2008. The findings of the paper suggest that:

EMN is a potential diversifier given the low beta it showed to the 2008 equity markets in what was a historically volatile year

EMN has lower annualized volatility than other hedge fund strategies over the long term and has provided generally positive risk-adjusted returns over the last ten years

After the significant market dislocation experienced by quantitatively managed funds in August 2007, many managers increased the range of data used, including building proprietary data and risk models, in an effort to try to mitigate the effects of a future mass deleveraging event

In order to achieve diversification within the strategy, investors should seek managers who work with a range of uncorrelated factors and proprietary models in order to avoid crowded trades. This diversification of factors and models was a key element in the strategy’s ability to weather market volatility in 2008 and will likely remain the cornerstone of alpha generation for the strategy going forward in the near term

EMN managers see the post-Lehman landscape as opportunity-rich for the strategy because there is less capital being deployed as well as less competition in program and high-frequency trading.