01.08.2014
By Terry Flanagan

Trading Risk Escalates

An emphasis on safety in addition to speed will characterize 2014, especially as the markets are evolving and systems are becoming more sophisticated and interrelated.

“With the continued increase in automated and high-frequency trading, people are increasingly aware of every mishap and the potential risks,” said Rick Lane, chief technology officer at Trading Technologies. “What we are seeing from our customer base, and this is probably industry wide, is a focus on innovation that ensures that when they decide to participate in the markets it will be in as safe a manner as possible.”

It’s not a matter of not deploying these new technologies, but of being comfortable in their ability to manage and control what happens.

“Generally speaking, as it relates to kill switches and systematic ways for identifying and mitigating problems, Trading Technologies has to do as good of a job as we can to give customers the tools and the ability to monitor and control these risk,” Lane said. “But at the end of the day, the exchanges need to play their role as well as they have the most information.”

Exchanges, he said, are “in the best position to identify whether trading activity is systemic and organic, or if it’s unusual and isolated and therefore more likely to be problematic. Individual participants lack such information. Exchanges are starting to invest money and resources into solving that problem.”

Trading Technologies is continuing to add functionality to its platform as it relates to risk. “That includes building in features, such as limiting orders per second, so firms can control runaway algos, or opening up an API, so they can plug in their own risk models and functionality from third-party platforms, and be able to control risk,” Lane said.

Another trend is that firms are more aware of their technology spend. “There’s probably still a consolidation play as it relates to EMS, OMS and throughout the stack,” said Lane.

TT is positioning TTNET, which is its global backbone where half of its customer base hosts their software, as a high-speed transport between trading hubs.

“We are installing and leveraging the fastest network links between our eight global data centers, whether it’s between NY and Chicago or NY and London, etc., and making that a compelling story on the performance side,” said Lane.

As opportunities in certain markets dry up, traders are seeking other ways to gain an edge, such as inter-exchange spreading opportunities. TTNET gives access to all markets to which TT connects.

“If we can do that in a way that’s fast and give them interesting solutions not just around networking, but also platform changes that will be announced in Q1, that lets them minimize the physical distances between these disparate exchanges,” said Lane. “That’s where we see the next frontier of low latency, which is not only being as fast as possible within each data center, but also mitigating the geographic distance between global data centers and regions. And generally speaking, it should also be more cost effective for our customers to leverage TTNET than to do it themselves.”

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