Direct Edge Launches EdgeRisk Gateway

Terry Flanagan

Direct Edge has launched EdgeRisk Gateway, a risk management tool that provides members and non-members with a dedicated gateway for trading on the EDGA Exchange and EDGX Exchange.

“EdgeRisk Gateway helps to mitigate the risk of trading disruptions and reduced the impact of messaging peaks related to other members’ trading activity,” said Bryan Christian, head of sales at Direct Edge. “It protects against risk in performance disruptions resulting from increase in order activity.”

Bryan Christian, Direct Edge

Bryan Christian, Direct Edge

Over the past year, Direct Edge has rolled out other products under the EdgeRisk brand, including Edge Risk Controls, a pre-trade risk tool that facilitates compliance with the SEC Market Access Rule 15(c)3-5 for broker/dealers and their clients, and EdgeRisk Ports, which offers market participants dedicated test ports to evaluate the readiness of their systems that connect to the EDGX and EDGA exchanges.

EdgeRisk Ports permits only designated test symbols to be transmitted to the production environment. “This provides a rigorous simulation of exchange conditions while eliminating the risk of a live order executing during testing,” Christian said. “All three of these products are in direct response to customers in asking for risk controls at the exchange level.”

Operators of trading venues are building out their risk management infrastructures following glitches in trading software have made front-page headlines and prodding from regulators.

The string of systems failures—beginning with the May 6, 2010 ‘flash crash’—has highlighted the dependence of the capital markets on software engineering.

The SEC’s proposed Regulation SCI (Systems Compliance and Integrity) is designed to ensure that core technology of national securities exchanges, alternative trading systems, clearing agencies, and plan processors meet certain standards and conduct business continuity testing with their members and participants.

For the past two decades, self-regulatory organizations have followed a voluntary set of principles articulated in the SEC’s Automation Review Policy and participated in what is known as the ARP Inspection Program.

The SEC has noted that the continuing evolution of the securities markets to where they have become almost entirely electronic and highly dependent on sophisticated trading and other technology (including complex regulatory and surveillance has posed challenges for the ARP Inspection Program.

Reg SCI seeks to codify, clarify and enhance the voluntary ARP program. “After having numerous discussions on this specific issue with a number of our buy-side clients, we believe that they share our strongly held views that the establishment of a full set of production testing infrastructure is critical in reducing operational risk in the national market system,” said Raymond Tierney, president and CEO of Bloomberg Tradebook, in a June 19 comment letter.

The best way to implement a testing infrastructure is for the SEC to set forth a set of principles for production testing for the entirety of the national market system, and then to let the industry come up with a solution, said Tierney.

FIX Protocol Ltd. (FPL), an industry standards group, has establishes a Risk Mitigation Symbology Working group, whose objective is to provide the financial community with no-risk test symbology for the production validation of complex trading and portfolio management systems.

The SEC should mandate the creation of test tickers and require they be universally supported by all Reg SCI entities, Tierney said.

An EdgeRisk Gateway is a dedicated server, or access gateway, that facilitates access to the EDGA and EDGX matching engines. The role of these access gateways is to perform order validation and manage the flow of information between the matching engines and the member. They are responsible for message validation, acknowledgement messaging, risk checks, matching engine routing and execution messaging.

They are delivered as server pairs, which allow members to startegicall6 distribute their order flow across both gateway servers, thereby protecting subscribers from a loss of access due to a server malfunction.

Subscribers have the option to allocate ports to the shared servers in order to complement their dedicated servers, which provides opportunities for further risk mitigation.

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