Prop Trader Hudson River Reaps $1 Billion in Frenzied Quarter

The meme-stock mania can be risky for retail investors and hedge funds alike, but the volume and volatility that comes with it have been a bonanza for one group of Wall Street professionals.

Hudson River Trading, a 400-person proprietary trading firm that specializes in equities and stock options, reaped about $1.2 billion from trading in the first quarter, an increase of more than 150% from a year earlier, according to people with knowledge of the results. Earnings before interest, taxes, depreciation and amortization surged 184% to $719 million.

New York-based HRT didn’t reply to phone and email messages seeking comment.

The results are particularly striking considering that the first few months of 2020 had already been a remarkably profitable period for firms like HRT, which wager on securities and act as market-makers.

Other trading firms that have seen their profits soar during the pandemic-induced volatility include Jane Street Group, Citadel Securities, DRW Holdings and Virtu Financial Inc. The frenzy in meme stocks such as GameStop Corp. and AMC Entertainment Holdings Inc. boosted their performance, according to Bloomberg Intelligence analyst Larry Tabb.

“Retail trading volumes increased in 2020 and peaked in January 2021,” Tabb said. “When spreads widen and volatility increases and everyone runs away, the profitability for liquidity providers increases.”

The phenomenon may prove short lived, at least for some of the firms. “Even if the market continues in its crazy ways, you’ll see other people come in to compete these spreads away,” Tabb said.

HRT’s trading capital ballooned 45% to $4.5 billion in the first quarter from year-end, the people said.

Proprietary trading shops are notoriously secretive, but the financial results from key players within the market are increasingly getting out as the companies turn to the leveraged-loan market to fund operations.

While HRT says it trades in “nearly all” of the world’s open electronic markets, it’s best known for trading equities and stock options, Tabb said. In 2014, the Wall Street Journal reported the firm was responsible for about 5% of U.S. equity volumes. It spent most of its time fine-tuning its algorithmic-trading strategies, according to the publication.

HRT, which employed about 100 people that year, has since quadrupled its headcount and now has offices in nine cities worldwide, including London, Chicago, Shanghai and Mumbai.

Founded by alumni of the Massachusetts Institute of Technology and Harvard with math and computer science backgrounds, the firm describes itself as one that’s “built by coders, led by coders.”

Chief among them is Jason Carroll, 43, who remains the largest individual owner, according to Securities and Exchange Commission filings. Carroll graduated from Harvard in 2000 and co-founded HRT two years later, following a brief stint at Tower Research Group.

©2021 Bloomberg L.P.

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