According to the recruiter, quantitative portfolio managers and traders with existing strategies and profits that are in the $20 million to $30 million range and above are in particular demand. "When they make the move over, they can generate revenue immediately," Long notes.

Some hedge fund managers, including Millennium Partners, are setting up the former bulge-bracket traders as mini-hedge funds, seeding them with capital and technology. "That's certainly the case," confirms BATS' Johnson. "Whether you look at the equity side or the options side, you can find folks who have definitely seeded the industry." He adds that there have been several cases of "lift-outs" of two-, three-, four- and five-person teams from the options organizations of the bigger sell-side firms.

"This high-frequency quant space has exploded," I-NET Technologies' Long comments. "This is the hot button now." Long, who places traders, quant researchers and programmers, says sell-side departures began in January of this year, after traders who had made money for their firms during the crisis were not paid their bonuses, and escalated through April. Compensation, he suggests, is a key reason why proprietary trading firms and hedge funds are able to attract talent from the larger sell-side firms.

The Promise of Bigger Paydays

Sell-side traders at the bulge-bracket firms usually are paid a base salary and bonus, Long explains, but the bonus is tied to the firm's performance. In 2008, a bad year for most firms, most traders did not make as much money as they had in prior years. Instead of staying with the bulge-bracket firms, Long adds, many have departed for independent high-speed proprietary trading shops, spurred by the promise of bigger paydays.

One of the major incentives for making the switch is compensation packages that include bonuses of 15 percent to 30 percent of the net profits. "The percentage is based off of the individual's [net] P&L, and it's not tied to the performance of the firm," according to Long. "The percentage payout is what attracts the better candidates away from the bulge-bracket firms." A trader who earned $1 million at a sell-side firm, he says, could potentially earn $10 million at a hedge fund, and the bonus money often is paid out quarterly rather than annually as is the case at most bulge-bracket firms.

Further, Long adds, these proprietary trading firms are not impacted by the scrutiny on the former bulge-bracket firms that accepted bailouts from the government or the controversy facing public companies over compensation packages. Traders also may view high-frequency trading as a lower-risk business since HFT firms "are not holding on to positions for longer than a day -- most of the time it could be minutes -- and they are in and out of securities," he says. "There's less risk and less capital required to trade and no positions at the end of the day."

Nonetheless, BATS' Johnson contends, the movement of traders from the traditional sell-side firms to the high-frequency prop shops and hedge funds already has peaked. "The best ones from the traditional sell side who wanted to make the move made the move pretty quickly," asserts Johnson, who maintains that the majority of moves occurred in the midst of the financial crisis, between October 2008 and this past spring. Now, Johnson reiterates, the next wave of talent for high- frequency shops is coming from exchanges.

One reason for tapping exchange talent is that, "Folks there understand the scale, scope, throughput and different capacity issues around high-frequency trading," Johnson says. "There aren't a lot of spots where you pick up that experience in the industry."

While I-NET Technologies' Long says the exodus from traditional sell-side firms picked up in January of this year and continued through April, he agrees that the departures from the large sell-side firms have slowed. "A lot of the senior people will wait to see what their bonus is [this year]" before committing to any changes, Long predicts. But, the recruiter says, proprietary trading firms and hedge funds are still hiring, and there's still a lot of shuffling going on in the industry.