Hudson River Trading LLC

The positive outlook reflects recent improvements in the company's capitalization that, if sustained, could lead to a higher rating. We expect that HRT will maintain supportive operational performance and liquidity as it continues to expand its trading operations and manage risk. We could revise the outlook to stable if we think the improvement in the capital position is temporary, or if we see evidence of inadequate risk management or an expansion in HRT's risk appetite. We could raise the rating in the next 12 months if we expect the firm to maintain a RAC ratio that is sustainably and significantly above 10%. We could also raise the rating if we're convinced that the resources at nonregulated subsidiaries and at the

...Hudson River Trading LLC (HRT) has a profitable principal trading and market-making franchise that is focused on expanding its trading strategies across asset classes and regions. However, its business relies on higher-risk, less stable principal trading revenue that depends on market volume and volatility. Capitalization has improved because of strong earnings, and despite the considerable growth of the balance sheet. As of Sept. 30, 2023, HRT's risk-adjusted capital (RAC) ratio was a solid 14.3%, an improvement from 10.9% at year-end 2022, owing largely to earnings retention and lower market risk amid declining market volatility. However, the RAC ratio for the firm could be volatile--its continued expansion increases market risk, and it carries riskier, capital-intensive overnight positions. To offset this potential volatility, the firm would need a RAC that is significantly and consistently above 10%....

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