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Pre-trade risk – a unified approach for various trading infrastructures Vladimir Kurlyandchik

Pre-trade risk – a unified approach for various trading infrastructures Vladimir Kurlyandchik Director of business development. arqa.ru. arqa.ru. Sources of financial errors. arqa.ru. Key factors to succeed. understanding the client’s trading model mathematical tools of risk management

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Pre-trade risk – a unified approach for various trading infrastructures Vladimir Kurlyandchik

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  1. Pre-trade risk – a unified approach for various trading infrastructures Vladimir Kurlyandchik Director of business development arqa.ru

  2. arqa.ru Sources of financial errors

  3. arqa.ru 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

  4. arqa.ru Risk serverrequirements • control by broker • multi venues • various risk control models • multi asset, multi currencyand portfolios with different settlement conditions • fast and scalable

  5. arqa.ru Risk serverControl by broker Client Trading Venue Risk Server Broker’s Infrastructure

  6. arqa.ru Risk serverMulti venues • arbitrage • netting obligations • higher volumes

  7. arqa.ru Risk serverVarious risk control models

  8. arqa.ru Risk serverAssets, currencies, settlement conditions

  9. arqa.ru Risk serverFast and scalable • consecutive calculation • number of clients • number of transactions • drop-copy processing

  10. arqa.ru Risk calculation approachesGenuine pre-trade Client Pre-trade control Trading Venue Risk Server

  11. Risk Server arqa.ru Risk calculation approachesFast pre-trade Client Pre-trade Control Module Trading Venue yes / no

  12. Market data latency • 2-3msrisk server at co-location • ≤5msrisk server in broker’s data center arqa.ru Latency defines approach Client Client Pre-trade Control Module Trading Venue Trading Venue Pre-tradecontrol Risk Server Risk Server

  13. arqa.ru Pre-trade & Algo Pre-trade Control Module Trading Venue Algo Engine + Clients yes no Risk Server

  14. arqa.ru Pre-trade & OMS Broker’s OMS Trading Venue FIXPreTrade FIX FIX FIX yes / no Risk Server

  15. arqa.ru Risk awareness of clients • monitoring risks • what-if calculator • closing positions

  16. arqa.ru Case study:Retail 150 000clients’ accounts 400 000positions in cash and equities 40 000positions in derivatives 0.9 - 5mspre-trade check latency 0.4msposition adjustment after trade ~10mlnprocessed transactions per day ~1.5mlnprocessed trades per day

  17. arqa.ru Case study:Genuine for HFT 15 mlntransactions per day 30% of all transactions at Stock market of Moscow exchange 450transactions per second - average speed 800transactions per second -peak speed ≤5.6ms average transactionlatency 2-3ms risk server overhead

  18. Risk Server Risk Server Risk Server arqa.ru Case study:Buy-side Broker A Buy-side Broker B Trading Venues

  19. ≤30 mcschecks per transaction arqa.ru Case study:Fast pre-trade for HFT Client Trading Venue FIX2Market Exchange protocol FIX HFT Engine yes / no Market data and client operations Co-location Risk Server

  20. 3 mcschecks per transaction arqa.ru Case study:Collaboration with exchange Workstation Moscow Exchange Trading Venue MICEX bridge Exchange API yes / no Market data and client operations HFT Engine Exchange co-location Risk Server

  21. arqa.ru Three actionable takeaways • Effective risk control starts with a trading pattern, employs mathematic models and appropriate infrastructure options while taking into account market peculiarities. • 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. • 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.

  22. arqa.ru Thank You! Questions?

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