TMX to Provide Hosted Risk Management Service
TMX Group has launched a service intended to control risks associated with automated trading, in part in response to new regulations that go into effect next year.
The service, called TMX Pre-trade Risk Management Solution, will provide clients with connectivity and technology needed for high performance pre-trade risk-filtered access to all Canadian equity marketplaces.
Canadian securities regulators have launched sweeping policies aimed at controlling risks associated with the speed and automation of electronic trading, and ensuring that firms actively monitor their risks.
“There’s a regulatory catalyst for the industry to ensure that risks associated with electronic trading are properly supervised and managed,” said Kevin Sampson, vice president of business development and strategy, equities trading at TMX Group.
Automated trading strategies “introduce a level of complexity and sophistication which has the potential to increase systematic risks,” Sampson said. “As the central marketplace and liquidity destination in Canada, TMX has a role to play in promoting compliance with upcoming regulatory requirements, and to support a market structure that mitigates risk.”
The TMX fully-managed hosted service, which will be deployed across the Toronto Stock Exchange, TSX Venture Exchange, and TMX Select, is aimed at lowering the time and expense associated with implementing and supporting pre-trade risk management technology.
The service uses risk management technology supplied by Mantara, whose core brand, Expressway, is used by major banks and institutions to detect and eliminate faulty trades.
“We are deploying a hosted and managed risk management solution in which Mantara will be the service and technology provider,” Sampson said. Mantara is ‘canadianizing’ the Expressway platform, he added.
The regulatory framework, called National Instrument 23-103, will require marketplace participants who enter orders electronically to maintain policies, procedures, and controls to manage the risks associated with electronic trading.
High-frequency trading now accounts for 42% of all trades in Canadian markets, according to a study by the Investment Industry Regulatory Organization of Canada (IIROC).
NI 23-103, which is to go 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.
The rules apply not only to direct market access provided by broker-dealers to their customers, but all forms of electronic trading, including proprietary trading.
“The framework requires that broker-dealers and members of the marketplace have appropriate supervisory controls and procedures, not only for sponsored access but also their own electronic order flow,” Sampson said.
Two other major North American equities exchanges, NYSE Euronext and Nasdaq, have expanded their risk management offerings through acquiring or investing in established technology providers, Fixnetix in the case of NYSE Euronext and FTEN in the case of Nasdaq.
TMX, instead, has elected to partner with Mantara, which it believes will provide maximum flexibility.
“The hosted solution is customizable at the firm, trader, and client levels with various options on access authority,” said Michael Chin, CEO of Mantara. “TMX’s hosted service allows brokers to offer their clients sponsored access with real-time risk controls, while maintaining a comprehensive view of their clients’ risk profiles.”
Algorithms have become more prevalent in the spot FX market.
QB’s Algo Suite for futures market trade execution is also being co-located to HKEX.
Breaking data silos is key to deploying automation beyond 'nuisance' orders.
They can be used on quantum hardware expected to be available in 5 to 10 years.
Streaming blocks change the basis of matching and price discovery so institutions can find new liquidity.