Calcalist : Secretive Israeli High Speed Algorithm Based Trading Firm Receives $4 Billion Buy Out Offer

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Yet another Israeli high tech firm has been offered a fortune from foreign investors.

(L-R) Nir Clarkstein Photo: Shaal for Calcalist ,    Noam Stern-Perry and Yoav Ben Dror

 

Israel’s Financial Algorithms, or Final, is an information technology company that develops algorithms that hedge funds can utilize for the purpose of financial trading and has reportedly been offered $4 billion in a buyout bid. The company which seeks to acquire Financial Algorithms has not been revealed and all that is known at this time is that the bidder comes from outside of Israel.

Israel’s Calcalist has, however, cited the American hedge funds, Chicago based Citadel LLC and New York based Renaissance Technologies LLC, as the possible bidders.

Final specializes in the development of proprietary prediction and trading algorithms as well as highly innovative schemes for handling large amounts of data and trade execution technology. Its set of analytical tools, statistical models and complex algorithms have made the company a world leader in the high-frequency trading sector.

Final uses state-of-the-art machine learning algorithms combined with techniques from related and relevant fields such as statistics, signal processing, economics and econometrics. These methods are enhanced by in-house developed modules and algorithms.

It sees its challenge as being to analyze large and complex data sets off-line, as well as process massive flows of real-time data.

This is also known as high velocity trading, a practice which has been decried by many, such as writer Michael Lewis, who feel that it is an example of the type of financial tools that caused the world crisis in 2008.

As Lewis wrote in his most recent book, Flash Boys: A Wall Street Revolt, “From the point of view of the most sophisticated traders, ” Mr. Lewis writes, “the stock market wasn’t a mechanism for channeling capital to productive enterprise but a puzzle to be solved.”

The company was started by a team of mathematicians who developed an algorithm which can identify relationships between large varieties of parameters at a specific time. This allows a firm to compute variables in the price of a futures contract in fractions of a second, thus increasing profits. While there are many other companies that do the same thing, Final has a reputation for having developed the optimal algorithms.

Founded in 2001 in the small town of Kadima in Israel’s Sharon region by Noam Stern-Perry and Nir Clarkstein, Financial Algorithms began with only $6 million in funding and has always turned a profit. By 2005 the firm was already had more than $60 million in profit. It eventually relocated to Herzlya where it has about 100 employees and posted a net earnings of $330 million for 2013. The company has consistently succeeded at outperforming the stock exchanges in which it invests since its inception.

The company is known for being tight lipped and secretive as its employees are all required to sign non-disclosure agreements that apply even when they leave it. That being said, Calcalist was still able to get one source at least to declare that stock brokers fear they will go broke if Final refuses to work with them.

They are active in many stock exchanges around the world and an estimated 20% of all of the futures transactions conducted by Germany’s Dax are said to be related to Final. Ironically, the firm does not conduct transactions in its home country’s Tel Aviv Stock Exchange. Apparently its owners feel that Israel’s stock market is too primitive for their algorithms to be effective.

Noam Stern Perry used some of the money which he has already earned from Final to recently purchase a $30 million five bedroom condominium at 25 Columbus Circle in Manhattan.

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