pre-trade risk – a unified approach for various trading infrastructures vladimir kurlyandchik...
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Pre-trade risk – a unified approach for various trading infrastructures
Vladimir Kurlyandchik
Director of business development arqa.ru
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Sources of financial errors
Key factors to succeed
understanding the client’s trading model
mathematical tools of risk management
taking into account peculiarities of particular markets
understanding of various infrastructure options
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Risk server requirements
control by broker
multi venues
various risk control models
multi asset, multi currency and portfolios with different settlement conditions
fast and scalable
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Risk serverControl by broker
Trading VenueClient
Risk Server
Broker’s Infrastructure
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Risk serverMulti venues
arbitrage
netting obligations
higher volumes
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Risk serverVarious risk control models
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Risk serverAssets, currencies, settlement conditions
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Risk serverFast and scalable
consecutive calculation
number of clients
number of transactions
drop-copy processing
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Risk calculation approachesGenuine pre-trade
Pre-trade control
Risk Server
Trading Venue
Client
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Risk Server
Risk calculation approachesFast pre-trade
yes / no
Pre-trade Control Module Trading Venue
Client
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Latency defines approach
Risk Server
Trading Venue
Client
Risk Server
Trading Venue
ClientPre-trade Control
Module Pre-trade control
2-3 ms risk server at co-location
≤5 ms risk server inbroker’s data center
Market data latency
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Pre-trade & Algo
Trading Venue Pre-trade Control Module
Risk Server
yes
Algo Engine
+
no
Clients
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Pre-trade & OMS
FIXPreTrade
Trading Venue
yes / no
Risk Server
FIX
Broker’s OMS
FIX FIX
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Risk awareness of clients
monitoring risks
what-if calculator
closing positions
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Case study:Retail
150 000 clients’ accounts
400 000 positions in cash and equities
40 000 positions in derivatives
0.9 - 5 ms pre-trade check latency
0.4 ms position adjustment after trade
~10 mln processed transactions per day
~1.5 mln processed trades per day
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Case study:Genuine for HFT
15 mln transactions per day
30% of all transactions at Stock market of Moscow exchange
450 transactions per second - average speed
800 transactions per second - peak speed
≤5.6 ms average transaction latency
2-3 ms risk server overhead
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Trading Venues
Buy-sideRisk Server
Case study:Buy-side
Broker B
Broker A
Risk Server
Risk Server
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FIX2Market
FIX
Trading VenueClient
Co-location
HFT Engine yes / no
Risk Server
Exchange protocol
Market data and
client operations
Case study:Fast pre-trade for HFT
≤30 mcs checks pertransaction
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Workstation
HFT Engine
yes / no
Risk Server
Market data and
client operations
Exchange co-location
Trading Venue
MICEX bridge
Exchange API
Case study:Collaboration with exchange
Moscow Exchange
3 mcs checks pertransaction
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Three actionable takeaways
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1.Effective risk control starts with a trading pattern, employs mathematic models and appropriate infrastructure options while taking into account
market peculiarities.
2.A fast and scalable risk server must be controlled by the broker. The server applies various risk control models simultaneously to cope with multiple instruments and portfolios with different settlement conditions at many trading venues.
3.The choice between full pre-trade and fast pre-trade is dictated by the latency requirement of a particular trading technique (algo, OMS,
retail, buy side, HFT).There are options to implement risk controls for maximum benefits.
Thank You!
Questions?
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