Category Archives: Architecture

SEFs Pending HFT Pains

Okay, this post’s title is a little misleading. I doubt that any trader would to apply the standard high-frequency trading strategy, which constantly pennies orders throughout the day but does not leave any open positions at the end of the day, when it comes to over-the-counter (OTC) swaps trading.

What has garnered my attention is the Commodity Futures Trading Commission’s (CFTC) trade reporting embargo rule that prevents swaps execution facilities (SEFs) from sharing recently executed trade details with other SEF participants before the SEF’s system releases the trade details to a swaps data repository (SDR).

Such a set up is going to lead to an unholy mess once dealers and non-dealers begin trading on SEFs. It is going to lead to a replay of flash-order headache that happened in the equities market a few years ago.

Yes, I know that the two markets aren’t carbon copies of each other. However, this embargo market data embargo will create a bifurcated market data model consisting of participants taking their feed directly from the SEF and those who will rely on data aggregator or SDR feeds.

According to a few well-placed industry sources, they expect SDRs to operate at the same pace as FINRA’s TRACE reporting platform. That might be fine for manual voice trading, but not when SEF matching engines run at millisecond speeds.

I can see both sides of the argument. Given the very illiquid nature of the OTC swaps market, flashing prices of recent trades helps provide additional liquidity. Yet, to take advantage of it, a market participant will need a direct link to the SEF. That’s an expensive proposition as more and more SEF operators come out of the woodwork.

Large dealers may be able to take on those additional market data costs given the large trade volumes they execute, non-dealers likely will balk at the situation.

In the equities market, all of the exchanges decided to retire their flash orders before the Securities and Exchange Commission (SEC) needed to make an official ruling on the order type. I do not think the CFTC will have the same luxury.

Case-Based Reasoning Eyes Wall Street

Today kicks off the 21st annual International Conference on Case-based Reasoning in Saratoga Springs, NY.

The four-day event brings CBR veterans and novices together to discuss research on and applications for the problem solving methodology.

Never heard of it? Neither had I, until I spoke with representatives from Verdande Financial Services, one of the conference’s sponsors.

In its most basic form, as explained to this 18th century history major, the CBR methodology uses past experiences to identify occurring trends, which may lead to a familiar event. (You can find far more academic explanations and reading here and here.)

Organizations can employ CBR to identify potential problems and arrest them before they cause a major headache.

For example, Verdande Technology, Verdande’s parent company, first deployed its CBR-based Edge platform in the energy industry, where it identified potential problems for off-shore drilling rigs. By comparing current performance data with historical performance data, oil companies could address issues before they needed to replace a drill bit or sink a new drilling shaft. Each process could cost a company millions of dollars.

 

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Avoiding Information Leakage in Social Media

Will the financial services industry limit its use of social media as yet another branding and marketing channel?

For Mike Manning, co-founder and CEO of start-up DealVector, social media offers financial institutions a way to connect and interact to drive revenue. The key, he says, is to protect one’s identity and provide just enough information to avoid any unintended information leakage.

DealVector launched its LinkedIn-esque investor-to-investor networking platform approximately two months ago so that user could find fellow collateralized loan obligation (CLO), collateralized debt obligation (CDO), residential mortgage-backed securities (RMBS) and trust preferred securities (TRUPS) investors without tipping their hands to the world like CXA Corp. had to do in 2012.

For those who don’t remember the event, CXA took advertisements in the Wall Street Journal and other publications seeking other investors in several RMBS series so they could pursue “rep & warranty” breaches against the dealers who sold them the securities. The advertisements were a simple laundry list all of the instruments in question. CXA did not published how much of each instrument it owned, but the world knew that CXA had inventory in those securities.

To avoid information leakage, DealVector provides access to its networking platform to only those who can bring something to the table. The vendor vets everyone who applies for membership and users should not expect to sign up with a G-mail or Hotmail address. And if they are purposely vague on their details, expect a follow-up phone call from DealVector.

Once vetted, users will notice that there is zero creativity when it comes to user names. Everyone has a DealVector-assigned user number- 62, 183, 451 or whatever. This prevents users from accidentally revealing their identities accidentally by using a name that they might already use for an email account, social media site or online gaming.

Users can message known community members directly or send a message to the community at large and only those users who previously registered interest in that specific topic can see the message.

When it is time to take a conversation offline, a click of a button will send the user’s contact details to the fellow user. However, DealVector’s holds all the identity and contact information in escrow and users will not see another user’s information until they send their own.

This is not to say that DealVector users know absolutely nothing about other community members. Similar to eBay and e-commerce sites, each user is given a “seller’s rating” based on previous transactions as well as the number of fellow users a member has recruited personally to join the platform.

No other information is stored on the hosted platform beyond user contact details, conversation details and interaction statistics, which should make information security staff sleep sounder at night.

As Manning often says, “DealVector’s purpose is to bring parties to a table so that they can start a conversation and that is it.’

NYSE Euronext Offers New XDP Consolidated Feed

Global exchange operator NYSE Euronext plans to add a new top-of-book consolidated data feed for its NYSE, NYSE Arca and NYSE MKT data feeds, dubbed NYSE Best Quote and Trade (BQT) and should be available later this week, say NYSE Technologies officials.

According to Todd Watkins, vice president, global market data at NYSE Technologies, the new product is an alternative for clients, who currently subscribe to the three top-of-book feeds separately like wealth managers and back-office professionals.  NYSE BQT is aggressively priced and users could see up to a 45% cost savings on their annual data costs compared to taking the Level-1 data feeds separately from the three SROs, he adds.

NYSE Euronext will deliver the feed via is Secure Financial Transaction Infrastructure (SFTI) using the NYSE low-latency Exchange Data Publisher (XDP) format, says Watkins. However, there are plans to work with existing market data aggregators to offer the feed  through other channels.

Exchange officials also plan to offer the individual top-of-book feeds from NYSE, NYSE Arca and NYSE MKT in the same XDP format, but decline to comment further about that move.

Low-Latency Zeptonics Mired in Legal Woes

About eight months ago, Australian low-latency networking equipment provider Zeptonics, made a hit at SIFMA Tech Leadership Forum and Expo with the announcement of its new 50-port low-latency Layer-1 ZeptoLink networking device.

Everything seemed rosy for the trading appliance start-up until the Australian Federal Court ruled on a tort brought against Zeptonics by fellow-Australian low-latency trading and networking equipment provider Zomojo.

In its decision issued this week, the Federal Court of Australia has ordered Zeptonics cease all use of its ZeptoLink, Zepto Access KRX, ZeptoNIC and ZeptoMatch offerings and turn them over to Zomojo.

All existing third-parties using or testing vendor’s ZeptoLink and ZeptoAccess offerings, which include about half of the top global proprietary-trading firms, also are under order by the Australian court “to not facilitate directly or indirectly their use.”

The basis of Zomojo’s tort is that while Zeptonics founder Matt Hurd was a co-managing director and head of the its R&D team between 2005 to early 2011, he used knowledge gained from his position to develop and market high-speed trading devices beginning in 2010 when he founded Zeptonics. Other complaints made in the same lawsuit include breach of fiduciary responsibility to disclose business opportunities presented to Zomojo and soliciting Zomojo employees during their restraint periods.

According to an official statement from Zeptonics, its products are the result of starting from a clean slate and two years of “inventiveness and hard work of a talented team of more than twenty people” and millions of dollars in investment.

However, the company will comply with the court order, but believes that it has “substantial ground for appeal,” the statement adds.