TMX Launches Pre-Trade Risk System

Terry Flanagan

TMX Group is rolling out a suite of pre-trade risk controls to help participants comply with evolving Canadian regulatory obligations, while also meeting the escalating performance demands of the marketplace.

The exchange operator selected ULLINK, a global provider of connectivity and trading technology to provide an enhanced pre-trade risk management and connectivity platform for its equity trading customers.

“In risk management in particular, there was a change in regulations, and we were responding to customer demands to meet that need,” said Rick Barber, director of product development in equities trading at TMX. “So we partnered with an external firm.”

The TMX Pre-Trade Risk Management Solution will enable participants to apply a variety of risk checks, trading limits and controls to their order flow, and will offer real-time monitoring of overall committed capital, open order exposure and intraday market risk exposure across all major Canadian equity venues. The ULLINK platform also offers customers seeking a single point of access to all TMX equity marketplaces an efficient and integrated connectivity service.

“This announcement is about providing continuity of service,” Barber said. “We had another vendor in place to provide pre-trade risk management to meet that regulation. So this new deal is to replace that vendor. One of the reasons we selected this vendor is it is a proven vendor and provided a mature product to enhance our marketplace.”

Canada’s financial markets participants are implementing stringent pre-trade risk controls that to aim meet regulatory requirements with little to no impact on day-to-day business operations.

The regulatory framework, called National Instrument 23-103, requires market participants who enter orders electronically to maintain policies, procedures and controls to manage the risks associated with electronic trading.

NI 23-103, which went into effect on March 1, 2013, imposes requirements on marketplaces for availability of order and trade information, marketplace controls relating to electronic trading, marketplace thresholds and erroneous trades.

“With constantly emerging challenges in today’s market, staying ahead of risk management requirements is absolutely crucial to any trading operation,” said Jeffrey Gangl, managing director, ULLINK Americas. “We are excited to be partnering with the largest exchange venue in Canada, enhancing TMX’s existing pre-trade risk offering while providing comprehensive, innovative trading technology solutions specifically geared to the Canadian market place.”

Separately, TMX is migrating to a high-performance trading platform, Quantum XA. TMX Select was the first TMX equity marketplace to shift to the TMX Quantum XA platform. The migration of Toronto Stock Exchange, TSX Venture Exchange and Alpha onto TMX Quantum XA is planned to begin mid-2014.

“We are in the middle of a program to enhance our trading technology,” said Barber. “In June, we’re rolling out the main market TSX onto the TMX Quantum XA platform. That will enhance latency. We rolled out TMX Quantum XA on our TMX Select marketplace in August. This is cutting-edge IT, where we are seeing median latencies of 25 microseconds.”

Canadian alternative trading venue Omega ATS last year launched a pre-trade risk system for Canadian marketplace participants. The system combines the Orbixa Dill risk-monitoring software with the Omega ATS platform to provide a turnkey system that is compatible with most order management systems and automated trading engines.

The Omega service includes multi-level kill switch capabilities, fat-finger limits, user permissions, symbol by symbol permissions, and capital or credit limit controls.

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