Copyright © 2010 Parallel Trading Systems Srl

Parallel Trading Systems

Document prepared by : Davide Zari

October 2010

Business proposition

2/9

Team

MEMBERS EXPERIENCE

Global executive, 18 years in EMC launching Bil$ new BUs within international assignments. He lead two startups now acquired by Fortune 500 companies.

BSc in International Business at Boston College, executive programs

Marco Buchbinder

Senior Trader, equity derivatives market maker for Archelon Deutschland and Abaxbank.

MSc in Economics at Torino University.

Massimo Gallizio

More than 10 years of experience on front-office system development for Morgan Stanley, Credit Suisse, UBS, Paloma Partners, Citibank.

MSc in Software Engineering at Ecole Superieure en Sciences Informatiques, Sophia Antipolis, France.

Alberto Giannetti

Trading system development in ION Trading and Enel. Specialized on grid computing and high performance systems.

BSc in Computer Science at Pisa University.

Luigi Idà

VP of Business Development in many eComm startups, he lead multi-Mil$ sales programs to grow revenue and stock market value.

BSc at Boston College, MSc at Duke University Fuqua School of Business.

Chris Keyes

Managed Mil$ projects for Banca d’Italia, Credit Suisse Italy, Banca IntesaSanPaolo. Business Development for foreign markets.

EMBA at MIP-Politecnico di Milano, MSc in Physics at Trento University.

Davide Zari

ADVISOR

ADVISOR

3/9

Partners for growth

PARTNERS PROFILE

PARTNER’S LOCATION

E4 (Reggio Emilia, Italy) produces HPC cluster servers and storage for the financial and scientific industries. Biggest processor customer distributor of Intel in South Europe. Supplier of Ferrari Racing and CERN.

Caspur (Rome, Italy) is a inter-university consortium that provide both state of the art HPC infrastructures and advisory services on quantitative finance parallel computing.

TA (Brugg, Switzerland) offers business support and office infrastructure, moderate taxation, qualified staff recruitment at 20 min from Zurich.

Mellanox Technologies (Yokneam, Israel) is a world leader supplier of connectivity solutions that optimize data center performance. Mellanox products deliver market-leading bandwidth, performance, scalability, power conservation and cost-effectiveness.

4/9

Business summary

Vision: use of parallel computing to achieve fast response to market changes on extended portfolio data sets.

Applications: direct market connectivity, algotrading and pricing systems, risk management.

Customers: statarb groups, inv funds,

investment banks, in USA and EU.

Target revenue: 7Mil€ after 5 years

Patent: patent granted from USPTO (08/2010).

Prototype: patenting technology demo

available.

External resources: external advisors for risk management and quantitative finance.

HIGH-FREQUENCY TRADING AND RISK MANAGEMENT

5/9

Market needs

Reliability of front-office systems during markets major stress periods.

Exponential growth of market data. Growth of automated high frequency

algorithmic trading.

Computing time for risk management.

End of Moore law. Multi-core architectures efficency. Newtwork architectures complexity.

Integration costs.

1

PROBLEMS

2

3

4

5

6

1. High Performance Computing technology based on stable solutions, result of decades of research in parallel applications: weather forecast and fluidodynamics.

1. Real-time system, able to parallelize the computing through standard interfaces between nodes. Easy integration with existing applications.

1. Immediate scalability following market

changes.

1. Licensing based on number of financial

instruments.

1. Re-use of available hardware.

PARALLEL TS SOLUTIONS

1

2

3

4

5

6/9

Market trends

IBM acquires InfoDyne for marketdata distribution (29/4/2008).

NYSE Euronext acquires Lombard Risk

Management (18/2/2008).

Sun Guard acquires GL Trade for front-office

and connectivity applications (4/8/2008).

Knight Capital signs agreement with Quant House for dark pool management (12/1/2009).

Co-location, installation of dedicated servers in market data-centers. New market distribution model.

Electronic market fragmentation: book modules aggregation to have a better liquidity management.

Exponential growth in the number of transactions. New contracts from CME and ICE.

Multi-assets real-time risk management. Improvement of management models and roles.

MERGERS & ACQUISITIONS - PARTNERSHIPS FUNCTIONAL TRENDS

7/9

Prototype

B&S Merton model pricing 5000 simulated underlyings on a 4 node 32 cores cluster

360,000 priced

instruments calculated in real-time (NPVs + greeks)

More than 10,000

market update/sec

More than 50,000 market events/sec (quotes+trades)

Tested scalability

from 1 to 4 nodes and 2 to 32 cores

ARCHITECTURE

Simulated market data

8/9

-80%

-70%

-60%

-50%

-40%

-30%

-20%

-10%

0%

500 1000 2000 5000 10000

Prototype benchmark & TCO

TCO: on a 3-year perspective there is a cost

advantage managing a large range of financial instruments.

Model: hw costs, installation and configuration, patching, licensing, maintenance respect a average front-office installation are taken into consideration in this model

TCO

N° instruments ΔTCO%

0

200

400

600

800

1000

1200

1400

1600

1800

1000 5000 10000

16IB

8IB

16TCP

8TCP

BENCHMARK

N° trade events/sec

ms

Benchmark: latency peak plotted for

massive greeks calculation deriving from a discount rate change in the marlet, using 8 or 16 core, TCP or Infiniband network and changing trade events number.

Results: scalability regardless the number of core used, advantage on the use of Infiniband.

9/9

Product and revenue structure

Market Data System

Proprietary Middleware

Order Mng. Risk Mng

Execution

Project wbs: already available proprietary middleware for task parallelization

I° MDS: direct market access and basic analytics to generate trade signals. II° Order Management: algotrading and program trading capabilities.

III° Risk Management: realtime risk and performance analysis such as VaR, S, Alpha calculation. IV° Execution: smart order routing, FIX integration.

Revenue structure: License: recurring license, no maintenance. Professional services: for customer personalization.

PRODUCT LOGICAL MODULES

Copyright © 2010 Parallel Trading Systems Srl

ANNEXES

Market trends

Algorithmic trading on total transactions (*)‏

(*) NB: Hedge Funds Review news 25-feb-2009: il 60% average volume US equities made from high frequency trading community (source: Aite Group)‏

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20.000

40.000

60.000

80.000

100.000

120.000

140.000

160.000

180.000

mar-07

mag

-07

lug-07

set-0

7

nov-07

gen-08

mar-08

mag

-08

lug-08

set-0

8

nov-08

gen-09

mar-09

NYSE volume [Mil] IVX volatility index

Exponential growth of market data

Growth of automated high frequency trading (now 60% of total transactions)‏

Growing transaction volume (+70% last year)‏

Volatility growth (+100% last year)‏

MTF growth (BATS, Chi-X, etc.)‏

1. Improved scalability on analysis and execution

2. Improved data management

3. Integrated real-time risk management

TRENDS BUSINESS NEED

1 2 3

1

2

3

Technology trends

Growing n° of CPU core: high performance systems are using hundered or thousand of CPUs, with a growing core number for every CPU (12 core within 2010).

Latency decrease: all the MTS interfaces are reducing market operation latencies, coming in the sub-millisecond region.

High speed networks: available high-speed low latency server to server networks, proprietary (i.e. 20-40 Gb/s Mellanox Infiniband) or standard (10 Gb/s Ethernet).

1 2

3

BATS Trading latency measures

N° CPU Top500.org supercomputing systems

Mellanox Infiniband bandwidth evolution

1

2

3

Value proposition

Server

CO

MPETIT

ORS

PARALLEL

Server Server Server

Server Server Server

Server Server

Server

Data

conso

lidatio

n

Less servers

Less computational time

Scalability

Update/s

Markets

Instrument N°

1k 10k 100k 1k

10k

100k

= Market opportunity

Update/sec

Markets

Instrument N°

1k 10k 100k 1k

10k

Global trading portfolio

Better Sharpe ratio

100k

Single

server

portfolio

Data

conso

lidatio

n

Portfolio

hedging

Consolidated portfolio

Global portfolio

Global portfolio

Unique portfolio for risk balancing

Real-time risk management

Better Value ar Risk (VaR)‏

Single server

portfolio

COSTS REVENUE RISK

Server Server

Server Server

Cluster

T1

T2

T3

Single

server

portfolio

Single

server

portfolio

T1

Portfolio

hedging

Portfolio

hedging

Portfolio

hedging

Positioning

FU

NCTIO

NAL V

IEW

TECH

NO

LO

GY V

IEW

Multithreading Stream processing Message passing

Pro: easy update for existing applications

Cons: scalability limited by shared memory solutions

Pro: parallelization not limited to shared memory systems

Cons: performance limitations on double precision math, specific hw implementation

Pro: maximum parallelism granularity, hw independency

Cons: difficult implementation, no real-time tradition

Markets Market Data Systems Front office Middle office Back office

Prototype

I° step

Prototype

I° step

II° step

Distinctive characteristics

FUNCTIONAL ADVANTAGES

TECHNOLOGY ADVANTAGES

Core/soket/servers scalability, not only on core/socket

Further speed increase given by the use of proprietary Mellanox Infiniband network

Scalability on increasing the number of market update

Real-time portfolio update for market hedging

Real-time option pricing for a really big portfolio, regardless the market updates number

Competitive TCO respect other solutions

Realtime Batch

Market data

Risk management

Pricing, OM, Execution

POSITIONING

Situation and prizes

Patent request made at the United States Patent and Trademark Office (USPTO). Patent granted in August 2010.

The patents will allow a better investment protection and facilitate growth in target markets.

PATENT

2010Q4 2011Q1 2011Q2 2011Q3 2012Q1

Prototype completed

USA and Italian company branches incorporated

Agreements completed with tech partners

Agreements with CASPUR and Technopark Aargau.

Alpha-test currently in progress

Prototype completed

Company incorporated

Framework base Market data OM

Partners selection

Alfa testers Sell mode

EVENTS Winner

Finalist

COMPLETED STEPS

Finalist

Past

Futu

re

Partners - Mellanox

COMPANY

CUSTOMERS (FINANCE)‏

PRODUCTS

POSITIONING (*)‏

Background: Founded in 1999 within Sequoia Capital investment. Focused on datacenter semiconductor development using Next Generation I/O standard. $107Mil sales FY’08 (+28%).

Markets: Solutions in transversal markets Enterprise Data Center, High Performance Computing, Embedded, with enterpise applications within Automotive, Energy and finance vertical markets.

Customers/Countries: total 100+ customers. Offices in USA, Canada, Europa, Asia and India.

(*) Top500.org world supercomputers ranking for computing power, filtered on Mellanox Infiniband network fabric

ConnectX: Chip and adapters for high speed connections 10/20/40 Gb/s, virtualization.

InfiniScale IV: Datacenter systems and switch 36 port 40 Gb/s with advanced traffic management, ultra-low latency (1 μs).

AWARDS

….