High Frequency Trading &
Clearing and Settlement
Presentation to EU Commission CESAME 2
Tuesday 2 March 2010
Steffen Gemuenden CEO & Founder
Mark van Vugt Executive Board Member
Ed van den Brook Solutions Manager
Agenda
1.
RTS Introduction2.
Our Customers
3.
Evolution of Trading in the last 20 years4.
Definition of High Frequency Trading
5.
Risk Management & Limits6.
Impact on Settlement & Clearing
7.
Q & A
Who is RTS…..
RTS Realtime Systems Group
RTD TangoRTD Tango
RTDRTD
RTS Trading ApplicationsPerformance
Stability
Connectivity
Time to Market
Single Solution
Multi Asset Class
Buy / Sell –
Side
Integrated Risk Management
Automated Tools
Algorithmic Trading
High Frequency Trading
ASP Hosting
eRTDeRTD
System Architecture
7
` Connectivity Central Comm
Server Front-end’s
ASP Hosting
8
CMECBOTICENYMEXISEActive FinancialARCACBOEDGCXDMEeSPEEDHotspot FXFXMarketSpaceNYBOT
Frankfurt
Chicago
New YorkLondon
EURONEXTLIFFELSECMECHI-XSwiss ExchangesBAXTERTURQUOISENYSE Arca
EuropeBATS TradingNasdaq
OMX
EUREXXETRAXetra
ViennaSwiss Exchanges
= Proximity Hosting
SGX Der. (plan Q4 09)SGX Cash TSE Fut. TSE CashTSE Der.TocomTFXHK DerivativesHK CashMCX, NCDexNSE, BSESFEASX
SingaporeTokyoHong KongIndia
RTS net
ASP Hosting
RTS Realtime
Systems Group
RTS Offices
RTS Offices
Our customersTraditional Investment Banks & BrokersProprietary Trading FirmsMarket MakersClearing FirmsExchangesHedge FundsStatistical Arbitrage Groups
Our customers
Evolution of Trading in 20 years
The evolution of trading in 20 years
The evolution of trading in 20 years
Definition of HFT
Definition of HFT“The natural evolution of trading”
From floor to screen (Step 1)From screen to Automation (Step 2)From Automation to Algo Trading (Step 3)From Algorithmic Trading to High Frequency TradingHFT Trading, a special form of Algo TradingComputer models instead of human beings
Algorithmic Trading UsersAnonymity 22%Cost 20%Trader productivity 14%Reduced market impact 13%Speed 11%Ease of use 7%Execution consistency 6%Customization 4%Other 3%
Source: “The Trade” Annual Algorithmic Survey
20
RTD Tango
21
RTD Tango
Tango paradigmTake your trading strategy and execute in proximity to the exchange(s)Experiment with trading ideas -
accurate simulation safer than liveCan you describe it? Then you can build it
Advantages of Tango Fast time to marketLow latency platformShort product familiarization timeframeStandardized exchange interactionIntegrates to risk platform (e.g.. limits / no short selling in specified stocks)Backtesting capability both in form of simulation and using collected full market
Advanced integrationMathWorks / Excel add-in for external modelsIntegration to third party pricing / news feed data
HFT Traders
HFT Traders
The race to “zero”
latency
HFT Traders
HFT Traders
The retail investor perspectiveHFT - LiquidityHFT - Very small Bid/Ask SpreadHFT - Co-Location advantagesHFT - Capital investmentsFake liquidity ???HFT Impact on large market movementsLiquidity disappears on large movements
The retail investor perspective
Who are the players
Who are the players
Traditionally Investment BanksProprietary Trading FirmsLiquidity ProvidersArbitrageursHedge FundsStatistical Arbitrage GroupsSmall very sophisticated trading companies
Requirements
Large investment in technologyProfitable algorithmsLarge Capital investmentsHigh trading limitsExcellent IT staffHigh-End Quants
32
Risk & Limits
Risk Management & Limits
Risk Management & Limits
Risk Management & Limits
Risk Management & Limits
37
Pre-trade hard limitsOrder Sizes
Overall Positions
Cash Limits
Margin Limits for Derivatives
Trading permissions
Market access limits
Spread Limits
RTD Risk Management – Set limits
38
Post-trade soft limitsReports on maximum loss intraday (value)
Reports on maximum long and short positions (sum)
Presented to risk user as warnings to trigger user interaction
RTD Risk Management – Set limits
39
Monitor order bookView active orders per customer or per exchange
Filter / sort by exchange / instrument
Interact as required to delete orders / deactivate from marketplace
RTD Risk Management – Monitor order book
40
RiskLimitViewMonitoring Limits Realtime
Limit violations displayed
Monitoring daily limits and P&L
RTD Risk Management – Monitor P&L
Risk Management & Limits
Risk Management & Limits
Impact of HFT on Settlement & Clearing
Impact on Clearing & Settlement
Impact on Clearing & Settlement
Q &A