One of the biggest and fastest traders in financial markets is abandoning its core business after its revenue engine stalled, a sign of the challenge of adapting in markets that unfurl in nanoseconds.

Teza Technologies of Chicago plans to exit its proprietary trading business in the next six months to focus on building up a quantitative hedge fund that manages more than $1bn, company executives said.

The new tack comes after net revenues at the proprietary business, which bets Teza’s own money in markets from futures to bonds, steadily declined from about $250m four years ago to $80m in 2015, according to three people familiar with the figures. In 2016, the business has struggled to make a profit, the people added.

“Generally, it is harder to make money,” Misha Malyshev, Teza chief executive, said in a rare interview.

Mr Malyshev founded Teza in 2009, naming it for a river in his native Russia. The high-frequency trading group used automated programs to vault to the top ranks of participants on venues such as the Chicago Mercantile Exchange and BrokerTec, a marketplace for US Treasury bonds once dominated by banks.

Mr Malyshev has a doctorate in astrophysics from Princeton. In 2008, he made more than $1bn for the hedge fund Citadel while serving as its head of high-frequency trading. Teza’s profile rose after it hired Sergey Aleynikov, a programmer who was convicted, and later exonerated, for stealing trading software codes from his former employer, Goldman Sachs.

Teza’s situation reflects broader pressures within the industry, where increasing sums are spent on telecoms infrastructure, computer algorithms and exchange fees in order to be an instant faster than others. Chopper Trading, another HFT group, quit the arms race last year when it sold out to competitor DRW.

The Teza payroll expanded from about 45 employees in 2013 to peak at 117 about a year ago. It has dropped to 93, Mr Malyshev said.

Teza in July began approaching investors with potential deals including purchasing equity in the core proprietary business, licensing its technology and becoming a partner in the fund business, three people familiar with the matter said.

Virtu Financial, a trading group based in New York, acquired wireless capacity and hardware from Teza in Europe and the US, including microwave towers that beam market information, people familiar with the matter said. Virtu declined to comment.

Asked if Teza was trying to raise cash, Mr Malyshev said: “Capital is never bad.”

The hedge fund, Teza Capital Management, started managing outside money in October 2014 and contained $1.1bn as of February, according to a regulatory filing. “The future of Teza is the asset management business,” Mr Malyshev said.

The filing warned Teza Capital’s computer models could fall short, including by making “assumptions regarding the existence of relationships that appear to hold true or in fact held true in the past but that may not exist or hold true in the future”.

Speaking a day after Donald Trump won his long-shot bid for the US presidency, Mr Malyshev added: “One thing we know is that in financial markets, six-sigma events are happening with the frequency of two-sigma or even one-sigma,” the lower numbers being statistically more likely.
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