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Christian Katz : SIX Swiss Exchange

By
Ian Rycott
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A NEW BEGINING.

SIX_Christian-Katz_634x375

The exchange has undergone many incarnations but Christian Katz, CEO, SIX Swiss Exchange, explains why the group is now in a better position to compete in today’s challenging marketplace.

There have been a lot of changes over the past year so where do you see the SIX Swiss Exchange today?

Effective 1 January 2008, the SIX Swiss Exchange merged with SIS, the Swiss clearing and settlement house and Telekurs, the financial data and payment transaction company to form SIX Group. We also co-own the derivatives exchange Eurex, Scoach (Europe’s leading exchange for structured products) and STOXX together with Deutsche Börse. This makes our exchange part of a diversified, full service financial infrastructure company with a unique business model.

Our exchange offers the listing and trading of a wide range of securities including equities, fixed income, exchange traded funds and structured products (traded on Scoach).  During 2009 we repatriated trading from London back to Zurich and introduced an innovative and technologically advanced new platform called ‘SWXess’ which is up to 100 times faster than our old platform. We are, moreover, about to introduce a new rulebook with lower capital requirements for market participants.

I think one of our biggest challenges is to solidify our new branding and make the market realize how much of a more versatile company we have become. It has been quite a step to move from a medium sized exchange to be at the core of a large group with over 3500 employees. We are currently integrating two companies in Luxemburg and Austria respectively, following their acquisition by SIX Group. Once finished SIX Group will have just under 4000 employees.

We believe that we are in the unique position of being based in the home of the world’s largest offshore money management centre.  The composition of domestic and international end investors is absolutely unique. Switzerland is also an attractive location due to its low taxes, highly educated workforce and position within Europe, while having the benefit of not being part of the European Union.

What are your plans for the exchange?

We have strategies to expand and develop each of our business segments.  On the trading side, we at SIX Swiss Exchange aim to reduce costs, improve latency and further enhance our technology.  We just changed our fee structure for the blue chip segment as of December 1. The fixed fee is being reduced or abolished for those that have high transaction volumes.  Fees for auctions will be harmonised. Alongside we introduced more detailed information and raised the depth of our order book from 10 bids and offers to 30.

On the listing side, we are looking to encourage more companies to list on the back of our client orientation, price, innovation and quality of service. At the same time, we are hoping to diversify our flow and attract a wider diversity of participants. There has been a great deal of press about our targeting high frequency traders and while we see them as an important segment, we are looking at the whole range of possible clients.

We also recently decided to switch ‘Swiss Block’ – the non-displayed liquidity service for Swiss blue-chip equities – to the SmartPool platform – set up by NYSE Euronext and leading investment banks – following the closure of the Nyfix Euro Millennium platform by its new owner, NYSE Technologies. We believe this adds another leg to our offering as a leading international trading venue.

What other new products have you launched?

This past September we launched a new service for collateralised structured products that aims to minimise issuer risk by means of collateral security.  Many people who bought structured products on the derivatives exchanges lost money when Lehman Brothers collapsed. As a result we implemented a service for collateral-secured instruments or “COSI” products. In that they can now be listed on our exchange and traded on Scoach Switzerland (a joint venture between SIX Group and Deutsche Börse). Collateral for these instruments is placed with our sister company SIX x-clear, which means that investors are covered should an issuer become insolvent.

What about the deal with STOXX?

In November, we along with Deutsche Börse bought out the 33.3% stake of STOXX (a stock index business) from Dow Jones. The acquisition complements our SMI family of indices but overall we think there are great opportunities for developing this business. So far STOXX was focussed on European equities indexes but we plan to proceed with a geographical and product-driven expansion as well as strengthen our market position in the ETF and derivatives space.

We have also expanded the services of CONNEXOR our web-based reference data infrastructure. Our new platform allows issuers to compile their reference data centrally in a standardised form and then have it disseminated electronically to all stakeholder groups. It is not only more cost effective but investors and users have real-time access to a vast store of reference data, which makes it easier for them to compare the different financial products.

In terms of industry trends, what issues do you expect MiFID to be tackling?

We have a large national and international membership and as a result of that we have to be compliant with MiFID rules on trading even though we are based outside the European Union. In the field of issuer regulation we do have, however, the option to follow our own regulatory path. In general, I do not think MiFID has created a level playing field. For example, the dark pools and crossing networks of investment banks may be functioning like an exchange or MTF but they are not subject to the same rules on pricing and reporting of trades. Even when exchanges get a waiver to operate a dark pool, MiFID rules require them to report trades right after they are executed and set prices at the mid-point between bid and ask at that moment.

What do you think the future will hold for MTFs?

The market will evolve and some MTFs will survive in one form or the other. They are competitors that we have to deal with but whether they eventually become like stock exchanges, only time will tell. I do not think that the European trading structure though will develop in the same way as the US. I use the airline industry to illustrate that in the US there are many sustainable budget airlines, but that is not the case in Europe. The national carriers still dominate and there are only really one or two low cost carriers that have had success.

[BIOGRAPHY]
Christian Katz is chief executive officer of the cash markets division of SIX Group as well as SIX Swiss Exchange. He also on sits on the group executive board of SIX Group. Previously, Katz was responsible for the equities division of Goldman Sachs in Zurich and before then, he worked for eight years at J.P. Morgan Chase in London, first as country head, equities sales for Switzerland, and subsequently as head of research marketing for Europe. Katz also worked at the London Forfaiting Company and at SBC Warburg.  Katz graduated in business studies and finance from the University of St. Gallen and went on to gain a doctorate in economics.
©BestExecution

Brad Hunt : Goldman Sachs

By
Ian Rycott
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FINGER ON THE PULSE.

GoldmanSachs_BradHunt_370x375

Goldman Sachs is always seen as being at the top of its game. Brad Hunt discusses the major challenges in the marketplace and how GSET is responding.

Goldman Sachs was one of the first to build an electronic platform. What has been the development?

Yes, we were among the first of the major banks to develop electronic execution services. We began in the U.S. in 2000 and expanded to Europe in 2002. I joined Goldman Sachs in 2001 with the mandate of building out our electronic trading offering in Europe, which we launched the following year. It was clear to us that changes in the equities market landscape were afoot; it was only a matter of time before the trends in the U.S. resonated across Europe and Asia.

How has the group evolved?

The global electronic trading group now totals approximately 400 people, so is a very large business. Our offering has grown significantly and expanded to multiple asset classes such as equities, options, futures, synthetic products and foreign exchange. There is a lot of focus on multi-asset class trading, and we have spent a great deal of time and effort developing our offering to provide comprehensive trading solutions that leverage the trading expertise of the Goldman Sachs franchise, and address the needs of our clients. We also provide access to all major pools of liquidity in Asia, Europe and North America, as well as integrated algorithmic, portfolio and spread trading functionality, pre- and post-trade analytics, clearing and prime brokerage services.

And you just launched the latest version of REDIPlus. How does that differ?

We are constantly striving to better our offering in line with the changing needs of our clients. Our clients can connect to us via REDIPlus or a host of vendor systems. REDIPlus version 9.1 introduces enhancements to options and futures trading capabilities as well as portfolio trading. It also enables users to integrate certain functions of the Bloomberg service with REDIPlus. Options traders will be able to use a new Time-Weighted Average Price (TWAP) algorithm, which leverages the “Strike” order type to minimise market impact while accessing liquidity.

What would you identify as the major themes over the past year?

Other than dealing with the fallout from the Lehman default, this has been quite an eventful year on the trading front. Clearly, the macro-economic environment has thrust a great deal of stress on all market participants. In response, the buy and sellside continue to seek ways to automate their businesses. For example, we are seeing many more buyside clients seek ways to map the portfolio manager’s intent onto the order instruction, and systematically segment and trade the order.

On the market structure side of things, the major themes have been inter-venue competition among MTFs and exchanges, the fragmentation of liquidity among venues, and across lit and non-displayed liquidity pools. The exchange competition has really been facilitated by MiFID, and the lit/dark changes have been more correlated with the relative growth and importance of high frequency trading (HFT) on these venues, and a corresponding growth in the sophistication of algorithmic trading. Of course, clients have increased their demand for low impact, non-displayed liquidity as liquidity on order books has become more dispersed.

The other clear theme is the continued frustration experienced by many of our clients on post-trade transparency. On this point, we see a greater urgency to find a solution in order to ensure investors maintain confidence in the market structure, and to this end, we are engaged with the industry participants and regulators in trying to find a lasting solution. I wish 2009 had been a year where we saw efficiencies on the clearing front, however, that continues to be problematic, and as a result, Europe is still relatively expensive for end-investors. Our data shows that, in aggregate, 2009 saw total trading costs decline, but clearing costs increase as a result of trading and clearing fragmentation and declines in trade sizes. So, we are not there yet.

What about all the press about high frequency traders?

It is clear that HFT has had a substantial influence on equity trading and market structure, but it is a mixed picture, depending on your perspective.

HFT adds much needed liquidity and efficiency to the markets, and drives inter-venue competition, tighter spreads, and spurs innovation. But amidst this, HFT has changed the nature of trading, and inevitably pushes some boundaries. Post MiFID, we have seen average trade and tick sizes decline, order book depth decrease, and simultaneously, exchanges are devoting considerable investment to cater to this growing community of sophisticated electronic market-makers.

To us, we see many net benefits to the market overall, but it’s clear this style of trading is having an effect on the institutional market. Exchange order books are less relevant now to the institutional orders than previously was the case. But, it’s also clear that there are many commercially astute firms that are willing to fill the gaps – dark pools are really the best proxy for this – in the same way upstairs accessible liquidity always has been, but there will also be other models. We strongly believe the regulatory framework should allow competition in this area, rather than force a one-size-fits-all model on an investor base with diverse needs.

What about sponsored access?

As I said earlier, post MiFID we have seen many technology-based innovations so it’s understandable that some of the recent developments will generate some scrutiny. In the case of naked sponsored access – where a broker or clearing firm offers unfiltered access to an MTF or RM – we think regulators have a basis to ask how this benefits the marketplace as a whole, and how risks can be mitigated.

What do you think the next phase of MiFID will bring?

Whilst MiFID has brought much needed competition and consistency of rules across Europe, it is still relatively new legislation. It is clear there are some areas that have worked less well and need additional focus. The biggest issue, in our view, is sorting out the post-trade tape and lack of competitive forces in market data. Despite market share erosion, real-time market data prices have not come down. Our clients are also frustrated that OTC trades are not easily reconciled and included in pre-trade decision-making and post-trade analysis. This is a complex issue to solve, but we expect a lot of movement on this in 2010, and we are very engaged in that process.

There has also been a great deal of talk about dark pools, but the reality is that non-displayed liquidity has always existed and been relevant to the institutional trading community. We don’t think the institutional market will want their orders and trading intent to be forced onto a displayed venue, so we favour a model where investors have choice. In the short-term, we think the lit books will continue to become less relevant to institutional trading and non-displayed venues – either broker operated or MTFs – will grow with the demand for low-impact trading.

What about clearing and settlement?

Solving the clearing and settlement issues will continue to be a significant challenge, but would represent the biggest “win” for Europe, in terms of bringing badly-needed efficiency and cost reductions to end-investors. There was a view that there could be a market led solution, but the exchange-brokered code of conduct has not facilitated real competition, let alone consolidation, and it’s clear now the that an EC-led directive on clearing is on the cards for 2010.

What are the electronic trading group’s plans for next year?

The direction of this group will largely be guided by the changing needs of our client base and finding comprehensive solutions for their trading needs. In a way this business is very simple – it’s all about liquidity and accessing it more intelligently than anyone else, coupled with a high level of service and flexibility. We have benefitted from maintaining a high degree of R&D spend in algorithms, crossing, and smart-routing through the downturn, and are excited about rolling out some cutting edge innovations in 2010.

What’s clear in all this is that the market has become much more quantitative, so it helps having a deep bench of quantitative trading talent to draw from. You need to ensure that your smart order routers have a competitive edge and can trade an order aggressively and, most importantly, post a passive order at the right price and in the right venues. As dark trading grows, so too will the need to differentiate dark order placement strategies.

We think one of the biggest trends in 2010 will be a greater demand for customisation. We expect clients to become much more quantitative in the way they approach order segmentation and trading optimisation. Firms will need flexible and adaptable technology with a strong quantitative backbone for scenario testing, and which allows them to get closer to the client decision-making process, and most importantly of all, provides incentives for brokers to compete objectively on execution performance. We think this is one of our strengths, and we have been working on third generation algorithms that are much smarter and can dynamically adjust, adapt and react to the changing market environment.

[Biography]
Brad Hunt manages the Goldman Sachs Electronic Trading (GSET) business in London. He joined Goldman Sachs in 2001 as executive director and was responsible for building the equities electronic direct access business in Europe. Prior to joining the firm, Hunt worked in sales and marketing for Reuters SE Asia in Hong Kong, and as head of Asia Sales at Instinet as well as marketing director of Instinet International in London. Hunt earned a Bachelor’s degree in international relations from the University of British Columbia, Canada.
©BestExecution

 

A Vision for FIX – Can a FIX network be the solution to seamless trading across multiple markets?

By
tom_brown
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By Tom Brown
Imagine a seamless flow from the opportunity through the trade, the fill, matching, settlement and confirmation. Now imagine this across multi-assets and multimarkets. RBC Asset Management’s Tom Brown thinks this reality is closer than we know using a flexible combination of OMS, FIX and EMS.
Imagine you are on the trade support desk, within your trade room, of a buy-side firm monitoring order flow. One of your Portfolio Managers has seen an opportunity flash on his desktop via an instant message from the head equity trader. He determines a buy of 50,000 shares should be executed for five portfolios. The Portfolio Manager enters a buy order in the order management system and sends it to the trade desk with the click of an icon. The equity trader picks the order and sends it to broker “A” as he was making the market.
The order comes back as filled to the trade desk and populates in the blotter. The order moves to ready status as a fully filled order, allocates across five portfolios and moves from the trader blotter to the trade support blotter. You now pick up the order and review details of the trade for accuracy. Having completed the review, you select the order and hit the icon for “prep post-trade” which applies the standard settlement instructions (SSI) to the trade. Having attached the SSI’s to the trade you hit the “send post-trade” icon and send the allocations and details of the order to the broker’s back office.
Your counterpart at the dealer will pick up the allocation and detail report. After reviewing for accuracy and confirming data points are complete, he sends back an “acknowledged” message that hits your blotter and changes the status of the trade from ready to matched/affirmed.
With the trade complete, you grab the finished trade and hit the send to accounting button, that sends the trade downstream. The trade flows to your book of records as a completed trade. It will also flow, at the same time, as a matched trade to your custodian who will pick up your trade across the five portfolios and process them as matched trades routing to your custodial accounts and through another stream funnel to the depository to complete the full trade cycle.
Imagine all those touches and the number of people involved, and then realize the whole cycle took less then five minutes to complete.
But why stop here? Why not the same functionality for the money market, fixed income, foreign exchange and derivative desks? A step further: all markets and all asset classes, globally. How do we proceed with flow and process?
Institutional Trading
A fully functional order management system (OMS) is essential to such a global, multi-asset, vision. This does not, however, preclude other levels of flow being developed, but you may risk gaps in compliance checks, limitations to the type of messaging or other aspects of the cycle. Let us review both scenarios.
We determined through discussions with our Institutional OMS vendor, Charles River Investment Management System (Charles River IMS), that for our purposes of developing “one stop processing”, fully integrating the application with access to the appropriate modules would move us towards this goal. We already had some of the tools built during our initial rollout of the application. For example: Pre-trade compliance and segregation of duties for user functionality allows an order to have breaks during flow that enable the various participants to perform their tasks in the cycle.
Portfolio Managers are able to trade a single name through their blotter or pass multiple orders through model changes per bucket. The biggest advantage is the ability to send program trades covering 100’s of orders from the managers workbench with a few key strokes, passing through compliance and conducting mandate checks verifying trades are accurate within seconds.
Once the orders hit the trade desk, the same ability allows our traders to grab one order or a whole program of orders and send them to “The Street” within seconds, to one or many dealers via the Charles River FIX network. This allows the desk extra time to work more difficult orders or simply to get orders to market in an efficient, timely manner for our dealers to vet.
Next was incorporating the right modules that would interface with the blotter builds we completed for trade support and back office functionality. Allocation and trade match modules added the ability to accept executions and breakdown the trade details in a manner that made the information usable for back office requirements, again using the FIX network. Since we trade at the bulk level, yet allocate at the portfolio level, this additional flexibility allows us to match with bulk numbers and also break out the order at the detail level for the allocation reporting and matching.
Integrating the back office
Once the order hits ‘ready’ status, trade support will pick an order or, multiple orders, and apply the SSI’s. This is the final step in the “prep for back office” process and performed by clicking on an icon. This includes trade support doing a review of the details of the trade for completeness. Once finalized, trade support will send the allocations and trade details to the broker at both the bulk and allocation level by clicking on the “send to posttrade” icon flowing across the FIX network. Depending on the interface, the broker will see the allocation and details in real-time and can either acknowledge or reject the instructions. Ideally, the broker will be able to offer the discrepancy and repair data at this time for our desk to accept (repairing the order in our OMS in an automated fashion), or reject which will push us to review investigate and restart the matching process.

Flexibility with FIX and OMS
All of the above is completed using the FIX network and our OMS platform, but it does not limit us to this single means of processing back office trades or matching trades. Where there are flow limitations to any of our counterparties we use the flexibility provided to us by our OMS to distribute key data points, along with the allocations, through an additional module. The trade gateway module allows us to develop flow through FTP (file transfer process), secure e-mail or SWIFT type formatting to our counterparts or custodians, where required and where the FIX network doesn’t interface. This includes applying SSI’s and other information relevant to matching and settlement of trades allowing us to maintain our post trade space in a consistent manner across several options.
Retail trading
For the retail desk, we were presented with a different structure that would prevent us from mirroring the institutional desk experience and use of the OMS proposition as outlined above. Our challenges were unique as orders were sent from various platforms including a branch network, individual investment counsellors and through the centrally managed model team. This order flow included weekly trade cycles totalling hundreds to thousands of orders being created at one time. We had the added requirement to be able to send programs broken out by various asset types and whether the orders were buys or sells, to a distribution of several dealers to ensure full broker coverage.
With these challenges and before we could build our post-execution and back office requirements we needed to find a suitable electronic trading platform. If we could not execute using a network this would limit the overall process and our ability to clear discrepancies and send matched instructions downstream.
After several attempts with various vendors, our partners at Investment Technology Group, Inc (ITG) came back with a solution reflecting a buy-in of our vision. We worked closely to develop a process using their EMS (Electronic Management System) with a flow that created a hybrid OMS/EMS application.
The completed flow begins with the “field” entering orders to a platform that allows trade support to process the administration of orders. Merging of like assets and settlement location, by trade support, reduces the orders to a more manageable number and allows the opportunity for better execution of trades on behalf of clients. These orders are then entered by trade support to the ITG-Triton platform where the trade desk can pick their orders and apply them to their basket for vetting before extracting orders to send to the street for execution via ITGNet (Investment Technology Group, Inc’s FIX network). Once the execution comes back into the platform as a filled order, the trader places the completed orders into the trade support basket to allow for back office processing.
The mid-term intent within the retail space is to build out a matching utility that allows transmission of data and allocations to the dealers back office. Following the same logic as the institutional desk, the dealer would then accept or reject the details and allocations, or offer repair suggestions via messaging which would be dependant on their version and interfaces.
Why FIX?
For our purposes, the FIX network was the most adaptable, automated electronic platform: from execution of orders across multiple accounts through multiple brokers, to back office interfaces for repair and affirmation of trades with counterparts, to future reporting at the custodians with matched status that could flow through to the depositories for real time settlement of trades. The ability for FIX to adapt to our requirements, as well as having the flexibility to interface with several dealer applications, allows for brokers, and ultimately custodians, to share synergies without significant costs or time commitments in relative terms.
We began our institutional FIX build by moving to the Charles River Network and changing from “hub and spoke” to “pointto-point” connectivity. This allowed us to set up unique and personal experiences per broker, thus moving away from one hub for our whole broker network. The point to point flow provides data points with variances per broker session and provides levels of tolerance to manage relationships. Point-to-point can also “dummy down” per broker session, allowing a dealer using different versions of FIX to send us ack/knack messages while another dealer with a higher version of FIX can provide additional reporting through discrepancy and repair notifications. We also needed the flexibility required for fixed income, derivative and FX processing, which requires the more current FIX release in order to message.
The ability for the FIX network to interface with the OMS provides other significant advantages. Instantaneous order flow, recording order history for audit or being able to provide FIX messaging for TCA (Trade Cost Analysis) reporting of trades from inception to completion, can all be provided using the same experience and work effort, without having to process piecemeal from other applications.

We anticipate a similar FIX experience for the retail trading desk once the build has been completed. Although we are using ITGNet, the capabilities of this network are flexible enough to allow unique broker experiences per session and will have the same type of connectivity for execution and reporting. The front end will be slightly different due to the type of order flow, but the same from a FIX and back office perspective.
View from the brokers
Our partners within the broker community had to be considered during the vetting process to ensure buy-in regardless of the flow we decided to build out. At a time when project costs and resources are tight, having an application with the flexibility and scalability to grow as required or interface with existing vendor applications was essential. FIX met all of these needs.

Views from the custodians
After discussion with our custodial partners, it was clear that they are willing to join in building a more dynamic and realtime experience through an electronic flow. Although it may not be FIX delivering the data directly into their front end, the ability for FIX to interface with Swift or other delivery vehicles will be instrumental. Our mid-term objective would be to pass match status trades to the custodian and though these would not be able to settle without intervention, it would reduce the touches required by back offices, whether at the manager, dealer or custodian level. Ultimately and more long term, the intention would be to pass matched trades through to the custodian and to the local depository for real-time settlement.

Information relating to third-party vendors has been provided with the kind permission from Charles River Investment Management System and Investment Technology Group Inc.
The information in this report has been provided by RBC Asset Management Inc. for informational purposes only. RBC Asset Management Inc takes reasonable steps to provide up-to-date, accurate and reliable information, and believes the information to be so when provided. Due to the possibility of human and mechanical error as well as other factors, including but not limited to technical or other inaccuracies or typographical errors or omissions, RBC Asset Management Inc is not responsible for any errors or omissions contained herein. RBC Asset Management Inc reserves the right at any time and without notice to change or amend the information. This report may not be reproduced, distributed or published without the written consent of RBC Asset Management Inc. RBC Asset Management Inc. and Royal Bank of Canada are separate legal entities, which are affiliated.
©RBC Asset Management Inc. 2009

進化する東証 – arrowheadで、東証は未来の取引参加者に照準を合わせます

By
satoshi_hayakawa
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By Satoshi Hayakawa
お待たせしました。東京証券取引所の次世代売買システム 「arrowhead」が、いよいよ年明けに稼働を開始します。arrowheadは国内および海外の投資家に高速性・可用性・信頼性をお約束します。東 京証券取引所・IT本部の早川聡がarrowheadの主な特徴をご紹介します。
はじめに
2010 年1月4日、新しい年の幕明けとともに東京証券取引所の株式売買システムが生まれ変わります。「arrowhead」と名づけられた次世代システムは、近 年の世界的な潮流として注文執行や情報送信に不可欠な高速性能を世界レベルで実現するだけでなく、Marketに本来求められる市場の公正性や信頼性をも 最高レベルで併せ持った世界最高水準の取引所売買システムとなります。「arrowhead」が稼働することにより、これまでにも増してTokyo Marketが魅力ある取引環境に変わりますので、今回はその内容をお伝えします。
arrowheadとは
現在のTokyo Marketは、高い流動性と安定感のある市場として一定の評価をいただいておりますが、金融業界における情報通信テクノロジーの高度化と、グローバルな取引市場間
の競争という大きな波の中で、さらなる魅力あるMarketに生まれ変わるため、東京証券取引所では次世代の取引環境として「arrowhead」の構築を決定し、2006年にその概要を公
表 いたしました。「arrowhead」の基本的なコンセプトは、最新テクノロジーの採用によって円滑な取引を継続するために必要な高速性と優れた信頼性を 備え、かつ十分なキャパシティを確保できるといったインフラ面からの強化を行うとともに、市場情報の拡充に加えて取引制度面での変更を行うなど Marketにおける更なる利便性の向上を行うことであり、いわばハードとソフトの両面から強化しております。それでは、新しいTokyo Marketをイメージしていただくため、具体的な「arrowhead」の特徴について以降で詳述します。
高速性
「arrowhead」の最大の特徴の１つは高速性です。ICT技術の高度化により、取引所システムの世界では評価される時間軸が“秒”、“ミリ秒”、“マイクロ秒”といった状況となっており
ま すが、これを世界標準レベルで実現するものです。注文受付から受付通知送信までが10ミリ秒以下、また注文が板登録又は約定してからそのMarket Dataを送信するまでが5ミリ秒以下であることを目標として掲げ、現在開発中のテスト実績では、これをさらに上回る高速な性能を達成しています。現在の 売買システムでは約１～２秒で処理が行われていることから、既存システムに比べ数百倍の高速化が図られるといった抜本的な性能改善がなされており、アルゴ リズム取引や高頻度取引の一層の普及と更なる高度化にも十分に対応できる性能を有しています。
高信頼性
Market に求められる重要な要素として、近年高速性が強調されておりますが、もう一つの重要な要素として信頼性が挙げられます。一般的に信頼性と高速性はトレード オフの関係にあり、取引にかかるスピードを1マイクロ秒でも高速化することを至上命題として捉えた場合、信頼性をある程度犠牲にするといった方向性も考え られますが、「arrowhead」で
は高速化の世界標準を実現するだけではなく、非常に高い次元で信頼性も同時に満たすことを大きな柱として掲 げ、これを実現しています。具体的には、注文受付・執行処理をミリ秒単位で行う中で、注文・約定情報に加えて、刻々と変化する注文板の状態もハードウェア の故障等によって消失することのないよう、異なるサーバー上で３重化して同期処理を行うことにより、取引の完全性を保証しています。また、99.999％ という極めて高い可用性を目標としており、業務アプリケーションを開発する際には“単純化”を徹底的に行っています。その他にも多数の最新技術を採用し、 物理的な仕組みでも信頼性を高める工夫を凝らしています。さらに、プライマリサイトが被災した場合に備えて新たにセカンダリサイトを構築しています。
市場情報の拡充
Market Data Feedでは、高速性の項で触れたように情報の発生から送信されるまでの時間を大幅に短縮するだけではなく、配信情報を大幅に拡充し、取引状況の透明性を 高めることによって、これまで以上に身近な市場となります。既存サービスであるFLEX 10Mサービスにおいては、現在値を中心に上下５本の気配情報を送信しておりますが、arrowhead稼
働後の後継サービスであるFLEX standard(100Mbps回線を使用)ではこれを上下８本に増やし、かつ上下９本目以上の情報を集約した累計情報等を送信するなど、情報の拡充を 図っております。さらに、新しくFLEX Fullというサービスを開始し、すべての銘柄のすべての気配情報を送信することも行います。なお、これらの情報は、東京証券取引所の取引参加者だけでは なく、海外も含めた機関投資家から一般投資家まですべての投資家が取得可能となります。
売買取引制度の変更
「arrowhead」の稼働に合わせて、売買取引制度の変更を実施しますが、ここではその中から次の２つをご紹介します。
ティックサイズの一部縮小
全体的な不均衡の是正と分かりやすさの向上を図るため、一部値段帯の呼値（ティック）サイズを縮小しますことから、よりきめ細かい発注が可能となります。
連続約定気配の導入
１ 注文により短時間での急激な価格変動が発生することを抑制するため、直前の約定値段から大きく乖離した値段（気配の更新値幅の２倍を加えた、又は減じた値 段）まで一気に買い上がる、又は売り下がる場合に、連続約定気配を表示し一定時間（ex.1分間）売買を保留する機能です。
な お、東京証券取引所ではarrowhead稼働後も、取引所機能に求められる公正な価格形成のために必要な制度は維持し、より魅力ある市場、注文の集まる 市場を目指しています。そこで、これまでの伝統的な信頼性の高い取引制度、具体的には、時間優先・価格優先といった両原則を遵守し、板寄せ、特別気配、制 限値幅、異常注文のチェックなどといった、投資家が安心して発注できる仕組み、適正な資産評価のために用いられる価格発見機能を支える仕組みは、何ら変え ることはなく現在の売買取引制度の方針を引き続き継承しています。

更なる高速・低レイテンシーの実現／コロケーションサービスの開始等
「arrowhead」 の稼働に向け、更なる高速化、低レイテンシーでの取引環境を実現するために、東京証券取引所では2009年7月に全業務システム、取引参加者、情報ベン ダー等を結ぶ次世代ネットワーク網「arrownet」を構築し、運用を開始しています。基幹ネットワークの内部レイテンシーは２ミリ秒以下と従来比10 倍の高速化を実現しつつ、可用性99.999% にまで高めたリング型のネットワーク網を構築しており、将来的には、国際間接続をも想定した拡張性を兼ね備えています。

さ らに、「arrowhead」が設置されるプライマリサイト内にサーバー等機器を設置することを可能とする「コロケーションサービス」も2009年10月 から発注可能となっており、コロケーションエリアから「arrowhead」までの間のレイテンシーは数百マイクロ秒となります。

これらの総合的な高信頼・高速取引プラットフォームにより、ますます魅力ある取引環境をご提供できるようになります。

おわりに
証券取引所が果たすべき本来の役割は何か。そのための取引所システムとは。この問いに答えるべく当社は「arrowhead」を開発しており、その過程では市場関係者と十分に協議を重ねて関係者の理解を得るとともに、高い品質の確保を最優先に考えて、開発ベンダーと一体となったシステム構築を進めております。

こ のたび当社では、先端テクノロジーなど技術の粋を集めた「arrowhead」を2010年に自信を持って世界に送り出します。また、この2009年10 月には新オプション取引システム「Tdex+」を稼働させるなどデリバティブ市場の強化にも意欲的に取り組んでおり、今後とも魅力ある総合取引所市場とし て利便性向上に努めてまいります。

中国保险资产管理核心业务系统的现状和发展

By
gao_shong
-

By Gao Shong
随着保险业务的迅速发展，中国保险业的资产管理规模也在高速的增长。截至 2008年10月末，保险资产规模和保险资金运用余额，已经达到3.19万亿元和2.89万亿元，分别是2000年的12倍和11倍。而是中国的保险公司 如中国人保、中国人寿、平安、泰康等从90年代开始设立专门的资产管理部门和中心进行集中运作，到2003年参照国际上通用的外部托管模式（资金托、管理 和托管独立）陆续成立了保险资产管理公司。目前，已经形成了9＋1（中资：人保、人寿、平安、中再保、太保、新华、泰康、华泰、太平；外资：友邦保险资金 运用中心）的格局，正是这些资产管理公司管理着中国保险业近90％的资产。
从 资产管理业务角度，保险投资不仅涵盖了国债、金融债、企业债、次级债等固定收益类业务，还涵盖了股票、基金、股权等权益类业务， 同时在基础设施投资、境外投资、衍生工具等方面也不断进行着积极探索（ 如 ABS、MBS、REITS、国债期货、股指期货等）。所以，从保险资产配置方面，呈现出资产结构多元化、盈利来源多样化、投资工具创新化、市场范围国际 化的四个特征。同时，随着监管机构对保险资产管理在第三方业务、企业年金、投连险等业务的放宽，保险资产管理公司管理的投资组合数量也在高速增长。所以， 在组合管理和账务处理的要求比几年前更高、专业性更强。
从 公司内部管理流程角度上，目前国内保险资产管理公司的内部管理基本上借鉴的是国外资产管理模式，分为风险监控和投资运作两条并行的流程。从第一级的资产配 置到第二级专业化的资金配置以及之后的下单、成交清算和最后的组合分析（包括：现金流、风险指标、内部的绩效归因），每个工作节点都伴随着严格的风险控制 和监察。随着保险投资规模及可投资范围越来越大，内部分析维度及管理流程也越来越复杂，而监管部门、委托人对资产运作情况的透明度及资产运作数据的时效及 分析要求不断提高。所以，资产管理的核心业务系统面临着重新定位、整合、集成的需要。
从 国内基金公司、保险资产管理公司大都采用的核心业务系统架构角度来看，大多核心系统都是由前、中、后台三部分组成：“前”台即指的是投资交易系统，其主要 功能为组合管理，执行场内、场外、境外的交易；“后”台指的是估值核算系统，其主要功能为每日的会计核算，生成估值报表和业务报表；中台指的是风控和绩效 归因系统，其主要功能为资产的分析，包括风险管理、组合管理、绩效评估，可以进行VAR计算，业绩归因分析以及事后的组合分析等。
一 方面，在系统选型的时候，大部分公司都按照“采用市场通用最佳方案”的理念来选用市场上的系统，所以此类系统多被固定的供应商垄断，如国内前台投资交易系 统的供应商主要是恒生电子、上海捷一软件公司；中台风控和绩效管理系统供应商主要是衡泰软件有限公司、金仕达；后台估值核算系统供应商主要是赢时胜、恒生 电子、东软等等。而且由于过去保险资产管理公司的IT部门，在系统架构管理方面缺乏国际经验,，缺乏对金融工具、投资业务的深入理解，基本上按部就班执行 着基本运维的工作。所以业务部门往往不放心把新需求交给IT部门组织开发，而是直接负责核心系统的选型和开发。因为业务部门的分工不同，常常造成在系统规 划方面严重的孤岛状态，而带来的影响例如前中后台数据结构不同步、参数重复维护、系统间耦合度低、对新型投资产品支持程度较慢等等。而由于每个业务系统都 有各自的开发商，不同开发商之间缺乏交流，通常不会主动地去协调和开发接口。目前行业内系统方面主要存在问题是：一，前台投资交易管理集成度底；二，缺少 组合管理系统；三，前、中台数据不能流转；四，中台数据实效性底；五，前、后台缺少核对机制。所以，要解决这些问题，就需要一个集中规划和管理的信息技术 统筹部门。
 与此同时，越来越多的国外成熟软件开发商进 入中国（如：DSTi、Linedata、Sungard、Thomson Portia、Tora、Fidessa、Bloomberg、SCD、Eze Castle等）希望为国内的资产管理公司和基金公司提供成熟的一体化系统方案。
目前，业内也有不少公司逐渐认识到系统集成、功能改进、数据统一的必要性和重要性，部分公司已经开始做相关尝试，其中也包括人保资产。

2 0 0 7 年初， 人保资产的外方股东德国慕尼黑再保险资产管理公司（ 以下简称Ｍ Ｅ Ａ Ｇ 资产）特地派出专家进行实地调研，最初考虑引荐S C D （ S i m c o r p Dimension）——即MEAG资产使用的组合管理投资系统的供应商——为人保资产开发适应中国保险资产管理模式的组合管理投资系统。但是经过一段时 间的分析，尽管SCD的资产管理一体化系统（包括组合管理、投资交易、估值核算等）在国外行业内排名领先、欧洲的市场占有率很高，但是国外系统开发商存在 开发实施费用昂贵，系统个性化和本地化方面存在不确定的风险。

所以，人保资产最终从国内的主要开发商中，选取一家进行核心系统数据统一平台项目的实施。通过统一数据平台，即前、中、后的系统集成，达到数据的集中，从而达到组合的实时净值管理、及时的投资资产各种风险维度计算（最迟T+1日）、前台交易数据与后台账务数据的直通等。

在选外包商过程中，根据外包商的特点，考虑过两种模式：
一、 在现有的平台上搭建一个数据层，通过事前定义好的业务逻辑，每日从各系统读取数据然后集成。这种模式，虽然可以达到数据集成的目的，但是时效性差，而且后 期的维护量大，（因为子系统一旦发生变化，读取数据的逻辑必须及时变更），所以，这种运营模式不适合个性化强的系统建设需要。
二、 搭建前台交易系统，组合管理系统，并且单独部署中台、后台系统。各系统中的数据通过统一的接口。这样的系统模式把前台的交易管理统一，按照公司内部的组合 管理要求可以相对实时地进行交易、持仓、现金、风险数据的分析。这种模式，虽然可以解决目前系统上存在的问题，但是在研究中发现，存在的问题是：如何把后 台的估值、账户现金信息与与前台的组合交易系统一一对应呢？因为在以往经验中，无论中监管还是委托人的要求，前后台数据的准确性都非常重要。所以解决这个 问题，可能是搭建统一数据平台项目的重要突破点！实现前后台对账，就需要在前台交易系统中同时设立财务科目，以方便与后台进行对账。如果前后台分别独立的 进行估值核算，如果由两家供应商进行开发，难免会使得规划好的流程不能通畅的运行，导致数据最终不能及时到达用户。所以，最理想的方案就是由后往前推，换 句话说：前后台数据统一，最好一家即后台的开发商从后到前来搭建。

人保资产管理公司全面总结信息技术支持业务开展的成功经验，充分借鉴外方股东MEAGS资产的成熟经验，努力克服国内没有先例可循等困难，在保险资金管理信 息化建设领域进行了大量探索，并将建设组合管理、交易、风控、财务统一共享数据管理平台列为今年的重点工作。八个多月来，公司不断结合保险资产管理行业实 际情况，先后对交易、投资、估值、风控等业务分别从数据和流程等方面进行深入分析，经过与十几家国内外的投资软件供应商反复论证和充分准备，形成了较为成 熟可行、符合国内实际、具有一定开创性的系统集成方案，并于近期启动了数据统一平台建设项目。根据规划，公司将围绕数据统一、系统集成、提升业务支持的三 个核心思想，通过统一数据平台项目，逐步实现前后台直通、实时净值、全面资产视图、满足从风控和管理等多种维度对资产进行管理的目的。

Insurance Asset Management in China – Developing core business systems in new markets

By
gao_shong
-

By Gao Shong
China’s insurance sector has experienced robust growth over the past decade, with total asset size and fund balance increasing more than ten-fold since 2000. But the industry is not without its challenges, especially on the technology side, which has struggled to keep pace with demand from the market. Gao Shong, Head of IT for PICC Asset Management offers FIXGlobal his assessment of the technology issues that must be resolved for the industry to move ahead effectively.
With the rapid development of the insurance business, the scale of asset management in China’s insurance industry is also growing at high speed. The latest available numbers (Oct 2008) show a ten-fold leap in assets managed and fund balance in less than 10 years, to RMB 3.19 trillion and RMB 2.89 trillion, respectively.
Beginning in the 1990s, Chinese insurance companies, such as China PICC, China Life, Ping An and Taikang, have all set up specialised asset management units, and since 2003 the same firms have gradually launched insurance asset management companies, based on the external trustee model (trust and managed funds, and independent trust) seen internationally.
At present, there are nine Chinese-funded (China PICC, China Life, Ping An, Central Reinsurance, Pacific Insurance, New China Life, Taikang, Huatai, Taiping) and only one foreign-funded (AIA Insurance Fund Operation Center) companies. Together these asset management companies are responsible for nearly 90% of the assets of China’s insurance industry.
Broad range of financial products on offer
For these firms, insurance investment covers not only fixed-income operations, such as treasury bonds, financial bonds, corporate bonds and subordinated debts, but also equity operations such as stocks, funds and equities. In addition, the firms are actively exploring infrastructure investment, foreign investment and derivatives, such as ABS, MBS, REITS, bond futures and stock index futures.
In terms of insurance asset allocation, there are four characteristics: diversified asset structure, diversified sources of earnings, innovative investment instruments and international market scope.
In the meantime, as the Mainland regulatory body gradually relaxes restrictions on insurance asset management in operations such as third-party business, corporate annuity, investment and investmentlinked insurance, the number of investment portfolios managed by insurance asset management companies is growing rapidly.
Learning from the international model
The result is an industry that has progressed rapidly in both professionalism and accountability, often taking the lead from the internal management processes of the foreign asset management model.
Internal and external pressures
From the first-level asset allocation to the second-level professional fund allocation and the subsequent order placement, transaction settlement and final portfolio analysis –
including cash flow, risk indicators, internal performance attribution – each process involves strict risk control and monitoring. With the scale and scope of insurance investment expanding, internal analysis and management processes are increasingly complex. Away from the internal processes, the requirements of the regulator and client with regard to transparency, timeliness and research data is also increasingly stringent.
Front, middle and back-office architecture
Together these internal and external pressures are pushing the industry to examine and integrate their core business systems. Presently, the architecture in most domestic firms comprises front, middle and backoffice components. Front office includes the investment trading system, with the main functions being portfolio management and execution of on-market, offmarket and foreign transactions. “Middle-office” refers to the risk management and performance attribution system, covering asset analysis, risk management, portfolio management and performance valuation. It can also perform VAR calculations, performance attribution analysis and subsequent portfolio analysis. “Back-office” covers the accounting system, including the daily accounting and generation of valuation and business reports.
Selecting the right system
To date, the overriding approach has been to source a system consistent with best market practice. As such, a handful of suppliers dominate. These include Hundsun Technologies and Shanghai Jie Software Technology for front-office investment trading systems, and Hangzhou xQuant and Sungard for middle-office risk control and performance management systems. The main back-office suppliers of valuation and accounting systems are Ysstech, Hundsun Technologies and Neusoft.
In the past, the IT departments of insurance asset management companies lacked international experience in system architecture management, and had limited knowledge of the investment process and financial instruments. Their role was often limited to carrying our basic orders and maintenance work. The outcome was that business units often took control of IT decisions including the development of core systems.
Avoiding isolation in system planning
A major issue has been the lack of communication between different business units, resulting in the isolation of system planning and a lack of synchronisation of data between the front, middle and back-office. Currently, themajor problems include: (i) a lack of integration among front office investment trading management systems; (ii) poor portfolio management systems; (iii) no linkage between front and middle-office systems; (iv) data in middle-office systems suffer from poor timeliness; (v) no mechanism for verification between front and back-office systems.
IImpact of foreign software on the market
Adding to the complexities, many foreign software developers are entering the China market, bringing more mature and integrated system solutions to China’s asset management companies and fund companies.
Companies are increasingly recognising the importance of system integration, functional improvement and data centralisation. In early 2007, for example, the foreign shareholder of Life Insurance Asset Management, MEAG MUNICH ERGO Asset Management (MEAG) sent experts to conduct on-site research.
At first, it considered recommending a China-adapted version of the industry-leading system used by MEAG.
However, after consideration of the high development and implementation costs, and the risk associated with adapting the European system to the China market, the decision was made to use one of China’s major developers.
Selecting the right model
Other domestic firms are going through the same process of selecting a system provider. From our experience, the following two models are the most frequently considered:

  1. Creating an interface on an existing platform. One option is to build a data layer on the firms existing platform. This involves applying predefined business logic and read data from the various systems on a daily basis to ensure integration. Although this model can achieve data integration, it can be slow and is likely to require regular maintenance at later stages as technology changes. As such, it is a model ill-equipped for a system that needs a high level of personalization.
  2. Upgrading the front-office, while separately deploying the middle and back-office. This model requires data from the front, middle and back-office to pass through a central interface. Such a system allows for the centralized management of frontoffice trading, as well as the analysis of transactions, position, cash and risk data in a nearreal-time situation, based on the company’s internal portfolio management requirements.

However, while this model solves  many of the problems in the current systems, it does raise a new issue: how to link the valuation and (cash) account information of the back-office system to the front-office trading system.
This accuracy of data issue has proven to be an essential requirement for both the regulator and entrusting parties, so solving this problem may be the key to building a unified data platform. To reconcile data between the front and back-office systems, financial items must first be introduced in the frontoffice trading systems to allow it to link with the back-office. If different suppliers have developed these two systems, this process is unlikely to be smooth. The ideal solution, from our experience, is to ‘push’ from the back to the front – i.e. data in the front and back-office systems are integrated and preferably built from the front to back by one supplier (preferably the supplier responsible for the back-office system).
An essential process for all domestic firms
Developing an information technology platform in a market with no domestic precedent is, without a doubt, a challenge. What we have found is that drawing on the experience of our foreign shareholder, while appreciating the need to create local solutions, has been the most successful approach.
The process is not rapid and can only take place when management makes it a strong priority. It has involved a large-scale audit of our capabilities and what the regulator and our clients require. We have also seen product demonstrations by more than a dozen domestic and foreign investment software vendors. It is a process that every insurance asset management firm will need to go through in China if it wishes to flourish in this fast growing sector. But the need for a unified data platform with direct linkages between front- and back-office systems, real-time net valuation and comprehensive view of assets is essential for firms focusing on multi-asset trading and risk control and management.

Trading Equities Gets “Sponsored” in Malaysia

By
gerald_blondel
-

By Gerald Blondel
Direct Market Access (DMA) is designed to enhance trading efficiency and accessibility and allows the buy-side greater control over their orders. It significantly reduces order-time; supports algo and block trading; and enables the buy-side to connect directly to the FIX DMA Gateway. Bursa Malaysia, recently announced their launch of DMA for Equities signifying a step forward in the way buy-side can trade equities. FIXGlobal brings you the story of DMA and Sponsored Access at Bursa Malaysia , and the associated implications.

Enabling Sponsored Access
On November 9, 2009 Bursa Malaysia announced the launch of DMA for Equities, a significant development indeed! They can now provide their investors, “sponsored access”, which allows the brokers to connect their clients directly to Bursa Malaysia’s trading system, without going through the broker’s trading system. Simply put, when an investor keys-in an order via his broker, there is no manual intervention. The system directly routes the order to the exchange once the process of checks and validations are carried out by the DMA Gateway, which is hosted by the exchange. So is the broker kept in the loop? What role does he play?

“The sponsoring broker receives ALL the execution reports. Whether the sponsored client sends a new order, an order cancellation or an order modification, a copy of the execution report is sent to the sponsoring broker. The sponsoring broker also receives a copy of the execution report when the order is partially or fully matched,” explains Gerald Blondel, Bursa Malaysia’s DMA Project director. There have been calls against sponsored access in the US, terming it an ‘undesirable’ practice. In the absence of the broker’s human intervention, how is the risk minimized? “The sponsoring broker sets the risk filter, e.g. MAX capital per order, MAX capital per day remotely in the gateway etc. When the client sends an order entry or modification, this order is checked against the risk filters in the gateway, at Bursa. The order gets sent to our trading engine only if it is all OK,” states Blondel.

From there to here
Bursa’s journey towards being leading-edge began in 2006, when they decided that investing in DMA was fundamental to remaining competitive in this technology-driven industry. It was understood that this won’t happen overnight. Bursa took the first step in rolling out this project by launching the ECOS gateway. This gateway was an enhancement of their Winscore System, launched way back in 1995 and was developed to improve internet trading via their equity brokers.

“The ECOS gateway enabled Winscore – the trading front-end provided by Bursa Malaysia- to accept orders via the FIX messaging protocol. As a result, latency is reduced and more than 20 participating organizations are now using it for internet trading and inter-broking.”

In April 2008, Bursa launched DMA Sponsored Access for derivatives, the first exchange in Asia to offer the service. “We received a positive response from the community, with 25% of all derivatives trading now being executed by DMA. This year we moved onto the next step by launching DMA for Equities with wide-ranging implications, like raising interest from high frequency traders, algo traders, and market makers. With this launch we will provide a complete DMA infrastructure for both the equities and derivatives markets.”

Despite the remote automation of the risk management element of “sponsored access”, Blondel believes the benefits outweigh the risks especially if the brokers are equipped to better manage the risk involved. “By allowing sponsored access for institutional investors and allowing market participants to install their own servers in the exchange’s data centre through the co-location hosting service, order management is processed faster and latency is much lower. As far as risk management goes, the DMA Gateway, hosted at the exchange and shared by our members contains pre-trade risk filters feature. This enables our members to manage client risk in real-time. We are also very confident that the risk filters are enough to protect the clearing member as well as the clearing house. On top of the risk filters, the brokers are using the drop copy feature to do real time risk management,” concluded Blondel.

HFT? What’s the fuss?

By
Creating Digital
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Are jibes against high frequency traders simply sour grapes by industry laggards?
With some estimates putting high frequency equity trades at close to 70 percent of the market, the storm surrounding the low latency practice shows few signs of abating. As charges of unfair practice abound, FPL asked a panel of London-based experts for their thoughts on the good, bad and the ugly of high frequency trading.
18 months ago the acronym HFT – or high frequency trading – barely registered outside the hardcore of the financial community. Today, the HFT community is being blamed for many of the investing world ailments. To try and sort the hyperbole from the fact, FIXGlobal highlights some of the key points made by those in the know about how firms are reacting to the threat or opportunities presented by HFT firms.
What is it?
Despite the level of expertise across the industry, agreement on what constitutes high frequency trading is hard to reach. To some it is a question of degree. Who in the market isn’t interested in latency? All sorts of algorithmic traders are latency sensitive, but not necessarily HF. Perhaps the cut-off point is when a high frequency trader became an automatic market maker, providing continuous two-sided bid offers.
Adding to the definition, HF traders seem characterised by an obsession with latency (down to the microsecond level); the ability to mix both statistical techniques as well as rapid-fire twoway market making; and also to end up flat at the end of the day.
Finally, it seems most agree that confidentiality was a hallmark of HF traders, with one of the experts in the room commenting, “You can define the HFTs as the ones not in the room right now.”
Is it anything new?
Market makers have always been around, albeit that the technologies have changed. High Frequency Low Latency (HFLL) has been around for more than 20 years, but people are scrutinising it – and other aspects of the market – now because of the extreme market volatility we’re going through. In particular, experts agree that those who had not upgraded their own trading practices fast enough were the main critics of high frequency trades.
How fair is it?
The critics argue that HFT firms have unfair access to execution venues and could front-run slower traders. Concerns over flash orders and unfettered sponsored access or “naked access” have prompted regulators in the US to review these strategies, but any changes could risk making a dramatic impact on a major source of liquidity.
Though, there exists a school of thought that HF traders have an advantage and manipulatory intentions, the consensus appears to be that it is the technology and not the traders that are creating the advantage. Better hardware, better networks and better software – it all gives you a better trading strategy. But these advantages are open to all, providing you have the interest and very deep pockets.
To take another tack. When talking about fairness, there is an implicit premise that everyone is in the market for the same reason. This is simply not true. The HF guys are looking to make miniscule margins on every trade, while hedge funds may be taking a position over two or three months, and the buy-side over one or two years. As an industry, we need to accept that different participants are in the market for different reasons. Then look at benefits that HFT brings such as increased liquidity, reduction in spreads, and increased competition between venues. These things are good for all participants in the market place.
Others argue that debating the “fairness” or whether HFT was too risky was pointless. Instead the focus should be on, whether the practice brought with it inherent risks to the market which needed to be mitigated.
Is it helping the market?
While all may not love HF traders, there seems little support for turning back the clocks. The need for liquidity had been shown in stark relief over the past 18 months and equity markets where HF traders flourish, continued to function where others failed. It appears that a lot of people who complain about HFT are those whose own practices are incredibly inefficient. “If you have someone executing their order flow in a way that leaves them exposed, people will always use this order flow or information to optimise their trades. This is no different whether information flows between people or machines.”
Should we regulate?
It goes back to the difficulty in defining HFT. It’s hard to legislate, or create a framework, for something that we’ve yet to clearly define. If you try to regulate a technology, this would risk forcing the market to move at the pace of the slowest participant. A better approach would be for the regulators to look at the definitions within MiFID, such as best execution and consolidated tape, and look at how we can improve this.
Europe looks likely to follow the US model in banning or regulating the less understood or defined side of HF trading: flash orders, sponsored access and co-location with dark pools. Risk management gateways, on the exchange side, or plug-in risk controls on the broker infrastructure, may come into play to rein in naked access.
Where will it all end?
The speed of light is one immediate answer. “Within 15 months latency will be another commodity.” While the other camp felt it would always be just shy of the ultimate speed. “We will always have a game to play,” they argued.
What all apparently agreed on was the incredible rate of change in the available technologies. However, HF technology comes with a price tag. Ultimately you have to weigh up opportunity relative to cost. Anyone can participate, but cost of shaving microseconds may not be worth it.
Meanwhile, HFT firms were in consensus to aim to stay ahead of the game focusing on growth in Europe and Asia, as well as expanding into other asset classes, including options, futures and foreign exchange.

Lowering Latency – How low is 'low enough'?

By
bill_hebert
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By Bill Hebert, Vijay Kedia, Donal Byrne
At the recent FPL Americas Conference, Bill Hebert, FPL Americas Education and Marketing Committee Co-chair moderated a panel of industry experts on “Latency limbo: How low can you get?.” The panelists’ insightful observations were so well received by the delegates that we decided to bring them to you. Here, two of the panelists, FlexTrade System’s Vijay Kedia and Corvil’s Donal Byrne, communicate their insights in response to Bill’s questions.
Bill Hebert: How do you best define ‘latency’ as it pertains to the electronic trading world and the issues different firms such as yours are facing?
Vijay Kedia (FlexTrade):
In the world of electronic trading, latency is the delay between receiving knowledge of a change in the market and acting upon it. During this time, information travels through both software and hardware, each element along the path introduces a measurable delay before a message reaches its destination. Latency is inevitable. The biggest challenge for vendors of high frequency algorithmic trading platforms is balancing rich functionality with the processing cost incurred because of it. Everything comes at a cost.
Donal Byrne (Corvil):
While the term ‘latency’ has a specific technical definition, it is important to remember that in electronic trading it is used as a proxy for the question “How fast am I trading”? While you might think this is a simple enough question, it is actually quite complex and proving very difficult for traders to get consistent and useful answers. There are three main reasons for this:
LAW OF LATENCY RELATIVITY
– knowing absolute latency is necessary, but not sufficient to determine if you will be successful in high frequency trading. Knowing latency relative to your competition is the key. This is often difficult to achieve.
LATENCY DESCRIPTION
– today latency is not usefully described in our industry. A single published number is insufficient and often misleading to use in describing the latency performance of an electronic trading infrastructure. In addition, latency should be measured under load conditions that represent intended use. What is needed is the measurement and publication of latency distributions, measured during busy trading periods, e.g. during the busy 1 millisecond of the trading day.
INTER-PARTY LATENCY
– latency measurement is required on an end-to-end basis for the electronic trading loop. This includes both market data paths and order execution paths. Unfortunately, the measurement of end-to-end latency in a trading loop involves two significant issues: How to measure latency across infrastructure that is owned and controlled by multiple parties, i.e. trader, venue and service provider? How to achieve microsecond accuracy latency measurement across the wide area?
Bill Hebert: What are some latency myths and misperceptions? How are firms using latency management/measurement as a “sales” tool and/or strategy?

Donal Byrne (Corvil):
The single biggest myth and misperception is that ‘Latency’ is a single constant number. We are all familiar with the typical claims:

  • Technology Vendor – “The feed handler is benchmarked at 10us”
  • Market Center – “We can execute an order within 350us”
  • Data Provider – “The distribution latency of our direct feed is 2ms”
  • Telecom Provider – “Our latency is less than 55ms transatlantic”

Advertised latency numbers have taken on major commercial significance in the world of high frequency trading, as many in the industry publish numbers in an attempt to show their service in a favorable light and to demonstrate superior performance over competition. Unfortunately this method of describing latency does little to help end-users understand the true performance of the underlying low-latency service. Market pressures are such that few dare to offer latency information that brings real insight and transparency to latency performance due to the fear of “appearing slower” than the competition. As a result, most informed customers of these services are forced to ignore the published latency claims and look to measure and benchmark latency service levels independently.
Secondly, ‘latency’ is not a constant. It is a lot like the weather, always changing. If you don’t like a particular latency number, then wait a millisecond. It will change. Why does it change?
Latency is not simply dependent on geographical distance alone. It is also dependent on factors like traffic load, network bandwidth, and processing capacity. If any of these factors change, then latency will change. The load on electronic trading systems is highly variable. We know that intraday patterns often show higher volumes at market open and close. We also see large variations in load at micro timescales. These are known as microbursts. Active components that process trading messages like trading engines, line handlers, gateways, firewalls, switches and routers can often be temporarily congested by these sudden microbursts which adds even further to the latency.
Vijay Kedia (FlexTrade):
The reality of electronic trading is that ‘time equates to the opportunity to profit’. As hardware and software gets cheaper and faster, the window of opportunity shrinks, and may be lost to the quicker, more responsive trader. Simply reducing latency will not guarantee profit, since the trading decision is still dependent on trader or strategy, but it does allow for a competitive edge. Additionally, hardware and connectivity matters; no matter how quick and efficient the system promises to be, if the entire path to market is not evaluated, the perceived gains within software will be negated by saturated market data bandwidth or overloaded switches on the way to the exchange. Latency numbers given in marketing materials are often misleading or have implicit assumptions, which do not accurately reflect realistic trading scenarios, and should always be taken with a grain of salt. Without a full understanding of how the metrics were generated, the numbers are just as useful as lottery numbers on the back of a fortune cookie.
Bill Hebert: Which has greater impact on the end client and how do you address the differences between issues with trading (order placement and execution reporting) and market data (quotes, trades, etc.)?
Vijay Kedia (FlexTrade):
Both order/execution management and market data are interconnected, but the weight placed on each is different depending on the trading strategy. While the goal is always to make each component of the system as fast as possible, the software vendor cannot place the emphasis on the client’s behalf. Providing the option to choose which component should be prioritized enables the client to manage the level of latency they are willing to accept. When designing the system, a modular approach allows for the most flexible trading solutions.
Donal Byrne (Corvil):
The key question of “how fast am I trading” depends on two further questions: How fast is market data being delivered? How fast can I execute to a given market center?
Both aspects are equally important in high frequency trading. In our experience, more focus has being placed on optimizing the speed of order execution while latency measurement and optimization of market data has sometimes taken second priority. As a result, we often come across situations where reducing order execution latency does not always produce corresponding improvements in fill rates. This can be due to excessive market data latency relative to competing traders.
Bill Hebert: In the EMS, DMA, optimal liquidity seeking environment we are in today are not the two (trading and market data) even more interdependent and timeliness/data synchronization effectively mandatory?

Donal Byrne (Corvil):
As explained above, the latency of order execution and market data are both critical to improving fill rates and interdependent in determining the effectiveness of a high frequency trading strategy. However accurate measurement of end-to-end market data latency is a bit more challenging than measuring order execution latency. This is due to the one-way, multicast nature of many direct market feeds. Microsecond accurate latency measurement requires precise time management/ time-stamping at both source and destination. This can be achieved using synchronization technology like GPS or PTP in all measuring or time-stamping devices. However, this often proves challenging to provision in practice as it requires coordination and collaboration between multiple parties involved in managing the infrastructure along the end to end market data distribution path. As a result, embedded timestamps in market feeds are often inaccurate, lack the required precision and use of them in computing latency can result in negative numbers. This is one of the critical issues that need to be addressed in high frequency trading infrastructure.
Vijay Kedia (FlexTrade):
When making trading decisions, the most accurate, up-to-date information is of paramount importance. Having extremely fast order entry, but delayed market data is no better than sending market orders at random time intervals. Most trading strategies make an implicit assumption about having zero latency in market data and order entry, so reducing these delays is essential to generating meaningful trades.

Lighting the Asian Dark Pools – Competition or co-operation? David or Goliath? Alternative or traditional?

By
backy_merrett
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By Backy Merrett

Has the industry found its latest villain in the form of dark pools? Not so, argued a group of traditional and alternative trading venue operators over dinner in Singapore last week. Dark pools are nothing new; they’re just finding their feet in Asia’s rugged exchange landscape. FIXGlobal’s Becky Merrett took a look at developments in the industry.
Caught in the middle of a seasonal Singapore early evening downpour, a group of regional specialists make the dash from their taxis to the warmth of an Italian restaurant. The roll-call reads like the Who’s Who of trade execution – Singapore Exchange (or SGX as it is most commonly known), BlocSec, Liquidnet, Chi-X, ITG, Bank of America Merrill Lynch and Credit Suisse. Have dark pools taken over from hedge funds as the baddie-du-jour in Asia? Should dark pools and exchanges compete, cooperate or co-exist?
Before the first cork was pulled opinions were flying, fuelled by the discussion’s volunteer ‘devil’s advocate’ in the form of Credit Suisse’s James Rae, (also Co-Chair of the FPL Singapore Working Group). “What is the purpose of a dark pool versus a traditional exchange? Why do we need alternative venues in Asia? And how do they interchange?” he asked.
“Dark pools have been around for a number of years,” argued Bank of America Merrill Lynch’s Mark Wheatley, fresh off a plane from Japan. “They’re not new in Asia. It’s mostly an extension of the internal broker systems. The alternative trading systems (ATS) we see now in Asia is the industry responding to the demands of their clients by creating a more formalised system.”
Discussing whether ATS should or not should not exist was pointless it seemed, as I toyed with my antipasti. “These are market and client-driven initiatives. All markets evolve, and financial markets evolve faster than most. To try and back track is both unwanted and unwarranted. Judging from the response from the markets in the US and Europe, ATS are here to stay,” Chi-X’s Rob Rooks stated emphatically.
Competitors or complementary?
Before the starters were finished, we’d killed the notion that ATS were going to slip quietly away into the night. Instead the conversation turned to the respective roles of traditional exchanges versus off-exchange platforms.
Liquidnet’s Greg Henry weighed in. “An exchange is about price discovery, it’s about listing and taking companies to market. Our focus is on efficiency, latency, liquidity and best execution.”
Unsurprisingly, it was a common view among the alternative venues around the table. Trading activity on the NYSE, they argued, now accounted for less than 30 percent of revenue. The role of traditional exchanges was increasingly focused on listing and sourcing capital. “The stringent regulations on listing, the information required, it provides a comfort blanket for investors,” Henry argued.
“At the end of the day, we all have to create the structure that works for our clients,” Henry concluded.
The right structure for your client? It was a theme that emerged again and again over the evening. The overriding – although not unanimous – feeling was that dark pools catered for one kind of investor, while exchanges provided security and solace for others.
“We don’t want to list organisations. The compliance involved in the process doesn’t fit with our business model. We’re more interested in a symbiotic relationship between ATS and exchanges. We attract different investors with different strategies. The investors trading through our venue are more likely than not to only hold a position for 10 minutes or less,” explained Rooks.
It was time for our lone exchange operator to pitch in. “We’re comfortable with the competition. Although, if we see a proliferation of venues, such as we’ve seen in the US, this is not going to help the region,” said SGX’s Bob Caisley. “We feel that the best way to move forward is to understand what dark pools offer and to let our clients access this technology,” he added.
It was an understandable position, given the recent announcement of a joint venture between SGX and multilateral-trading facility, Chi-X. The deal, which was inked in August, is aiming to launch its Chi-East non-displayed liquidity pool by June 2010. Clearly the move has raised the stakes as it is the first time in Asia that a dark pool has the backing of a regional exchange.
Can Asia do it better?
So would the Chi-East venture act as a catalyst for the region, Rae asked. And was Asia in a position to learn from the experience in Europe and the US?
The consensus was that Asia had its advantages and disadvantages. “The multi-market, multi-regulatory environment makes the likelihood of a RegNMS or MiFID a pipe dream. But regional markets can benefit massively from tracking what’s going on in the US and Europe and then picking what works best,” said ITG’s Perry Pritchard.
“It’s true that while the US and Europe have had to pass through a number of stages over a period of decades to reach the market maturity they have today, Asia can go from step one to step five in one stride,” explained BlocSec’s Christian Chan.
Caisley agreed, but cautioned against looking at Asia as a single proposition. “We can’t talk about Asia as a single region. There are, at best, six markets that have anywhere near the kind of regulatory and financial maturity to look at dark pools.”
Singapore – a catalyst for change?
While Singapore may have taken the plunge, around the table there seemed general agreement that other exchanges were likely to take a wait and see approach. “We know that other exchanges in the region will be keeping a close eye on how this pans out,” said Henry. “The regulators will also been tracking the Singapore experience, both to look at what works and what doesn’t,” he added.
“For dark pools to gain any kind of traction, we all need to focus on the key markets,” said Pritchard, “and we need to be engaging in a two-way discussion, with the regulators.”
“You can bet that Hong Kong and Australia will be paying particular attention. While they are very different markets, they both have near-monopolistic exchanges and stringent regulators, who are keen to protect retail investors,” Henry added.
For Singapore, the SGX / Chi-X joint venture sees them stealing some of the Hong Kong ‘regional financial hub’ glitter, as they position themselves as a market leader and a catalyst for change. “We’re also in discussion with other ASEAN exchanges about an ASEAN linkage,” said Caisley.
Co-operation – the stronger option
“This is what institutional investors want, and we need to listen to our market investors. It doesn’t pay to be competitors. Co-operation has to be a stronger option,” said Rooks. “But we’re in a fast moving industry, working with intelligent people who are constantly looking around the next corner. We have to innovate and we need the regulators to keep track of what the market expects.”
The technology infrastructures in different regions also needed to keep pace, Rooks argued. “Clearly our business model relies on a strong connectivity infrastructure,” said Rooks. “We want to work with the regulators to help free up the exchanges from much of the technology burden and work with solution specialists to enhance the connectivity infrastructure.”
The subject of competition versus co-operation reared its head throughout the dinner. One minute the view was that the two trading venues offered different services to increasingly different clients, while in the next, the future was heading for, what all around the table acknowledged to be, a battle for revenue.
“Exchanges as much as dark pools are revenue centres. This is a rapidly changing industry and we all need to stay focused on what our clients want. From our perspective, the SGX joint venture is our way of responding to the market,” said Rooks.
As the coffee arrived and the evening drew to a close, there was consensus that the relationships between the Asian exchanges and alternative venues will increasingly be defined by neither pure competition, nor pure co-operation, but a healthy mixture of both. Judging from the conversation over dinner that evening, whatever the relationships and ongoing debates in Asia, they will clearly be very lively.

Chi-X/SGX secure leading clearing house for Asia JV

Our convivial dinner was followed the day after by the announcement at TradeTech Asia 2009, from Chi-East, the joint venture between Chi-X Global and the Singapore Stock Exchange that it would be using the strongly capitalised LCH.Clearnet as its central clearing facility.

Once the regulatory hurdles have been cleared, the service will allow for Australian, Hong Kong and Japanlisted securities to trade on Chi-East. The move also marks LCH’s first major foray into Asia, a market that the London-based clearing house has been eyeing for sometime.

“We are confident that LCH.Clearnet will assist us in helping to lower the overall frictional cost of trading within the region. This relationship ensures Chi-East will have robust, reliable and integrated architecture through all stages of the trade,” explained Chi-East director, John Lowrey.

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