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©2013 Software AG. All rights reserved.
Dr John BatesCTO, Software AG
12th November 2013
Turning Market Crisis into Competitive AdvantageThe Clue’s in the (Fast) Big Data
©2013 Software AG. All rights reserved. For internal use only
2 |
Agenda
• Recurring Crises in Capital Markets
• The Consequences Just Keep Getting Bigger
• “Unwanted Behaviors”
• Examples from:
• Market Abuse & Manipulation
• Rogue Trader Detection
• Pre-Trade & Rogue Algorithm Checks
• Kill Switches & Circuit Breakers
• New Paradigm & New Technology
©2013 Software AG. All rights reserved. For internal use only
3 |
Recurring Crises in Capital Markets
Marketmanipulation
Ever-evolvingregulation
“Fat Finger” trading errors
Rogue traders
Wild algorithms
©2013 Software AG. All rights reserved. For internal use only
4 |
The Consequences Just Keep Getting Bigger
Trading Losses
Regulatory Fines
Reputational Damage
Credit Rating
Insolvency!
The End of HFT?
©2013 Software AG. All rights reserved. For internal use only
5 |
Control Failures are all examples of “Unwanted Behaviors”
Crisis can come from anywhere, anytime, on anyone's watch!!
•High touch or low touch trade flows•By clients or staff•Pre-meditated or accidental•Breach regulation or simply internal policies•Be labelled as Risk or Compliance•All “Unwanted Behaviors”
©2013 Software AG. All rights reserved. For internal use only
6 |
Trading technology is about behaviors too! Uncovering market behaviors in Big, Fast Data and profiting from them…
Complex Event
Processing
In Memory
DB /Data Grid
FastMessaging
Visual Analytics
©2013 Software AG. All rights reserved. For internal use only
7 |
Mismatch Between Trading Technology and Risk & Compliance Technology
VS.
©2013 Software AG. All rights reserved. For internal use only
8 |
Mismatch Between Trading Technology and Risk & Compliance Technology
A Ferrari to catch a Ferrari
©2013 Software AG. All rights reserved. For internal use only
9 |
Unwanted Behavior Detection Can Utilize Lessons Learned from the Trading World…
Complex Event Processing
In Memory DB /Data Grid
FastMessaging
Visual Analytics
©2013 Software AG. All rights reserved. For internal use only
10 |
Visual Analytics / Alerting
Market Abuse & Manipulation
Market Data
Email, Social Media etc
Trade Data
Order Data
News
“Behavior” monitoring
Faster decision making for better business with instant action on real-time insights
Fast access to large and varied data sets
RegNMS, Market Abuse Directive•Insider trading•Front Running•Layering•Quote Stuffing•1-2-3 Go•Wash Trades
©2013 Software AG. All rights reserved. For internal use only
11 |
Market Abuse & Manipulation
Market Data
Email, Social Media etc
Trade Data
Order Data
News
“Behavior” monitoring
Faster decision making for better business with instant action on real-time insights
Fast access to large and varied data sets
“When a buy and sell trade occur within any 500 millisecond window for the same instrument by two different firms and volumes and price are within 1%, signal a 1-2-3-Go alert.”
Visual Analytics / Alerting
©2013 Software AG. All rights reserved. For internal use only
12 |
Market Data
Email, Social Media etc
Trade Data
Order Data
News
“Behavior” monitoring
Faster decision making for better business with instant action on real-time insights
Fast access to large and varied data sets
“If a trade occurs for an instrument not usually traded by that trader or it is unusually large for that trader and a related news article occurs within 5 minutes which moves the market by > 10% within 30 minutes, signal a Insider Trading alert.”
Market Abuse & Manipulation
Visual Analytics / Alerting
©2013 Software AG. All rights reserved. For internal use only
13 |
Rogue Trader Detection
HR Data
Physical Access Data
Trade Data
Settlement & Clearing
Calendar Data
“Behavior” monitoring
Fast access to large and varied data sets
Faster decision making for better business with instant action on real-time insights
Guidelines on Unauthorized Trading
Checks on•Cancels/amends•Unusual profits•Unusual hours•Vacations
Visual Analytics / Alerting
©2013 Software AG. All rights reserved. For internal use only
14 |
Rogue Trader Detection
HR Data
Physical Access Data
Trade Data
Settlement & Clearing
Calendar Data
“Behavior” monitoring
Fast access to large and varied data sets
Faster decision making for better business with instant action on real-time insights
If number of cancel/amends for a trader is greater than 2 times
that of peer group over the same period then signal Unusual Concentration of
Cancellations alert
Visual Analytics / Alerting
©2013 Software AG. All rights reserved. For internal use only
15 |
Pre-Trade & Rogue Algorithm Checks
Trading Venue(s)Pre-Trade Risk Firewall
In-house ExecutionAlgos
Instant action on real-time insights, enabling faster risk controls
Ultra-fast access and messaging capabilities
DMA
Sponsored Access
Regulating automated flows (DMA etc)
Checks on•Price•Volume•Order:Trade•Event rate
Visual Analytics / Alerting
©2013 Software AG. All rights reserved. For internal use only
16 |
Pre-Trade & Rogue Algorithm Checks
Trading Venue(s)Pre-Trade Risk Firewall
In-house ExecutionAlgos
Instant action on real-time insights, enabling faster risk controls
Ultra-fast access and messaging capabilities
DMA
Sponsored Access
If order quantity is greater than 2 times the average
traded volume for the instrument then signal
Unusual Order Quantity alert
Visual Analytics / Alerting
©2013 Software AG. All rights reserved. For internal use only
17 |
Panic button
Kill Switches
Pre-Trade Risk Firewall
In-house ExecutionAlgos
Instant action on real-time insights, enabling faster risk controls
Ultra-fast access and messaging capabilities
DMA
Sponsored Access
Trading Venue(s)
Visual Analytics / Alerting
Exchanges & Broker/Dealers
Capability to:•Cancel all open orders•Block all new orders•Auto-hedge partially executed spreads
©2013 Software AG. All rights reserved. For internal use only
18 |
Panic button
Smart Kill Switches
Pre-Trade Risk Firewall
In-house ExecutionAlgos
Instant action on real-time insights, enabling faster risk controls
Ultra-fast access and messaging capabilities
DMA
Sponsored Access
Trading Venue(s)
On Unusual Order Quantity alert, block all new orders
from that algorithm, cancel all pending orders and signal a Potential Rogue Algorithm
Alert.Request manual intervention
to unblock algorithm
Visual Analytics / Alerting
©2013 Software AG. All rights reserved. For internal use only
19 |
New Paradigm Platform Requirements
Mobile people & devices
Hadoop & Data Warehouse
Financial Events
Social Media Events
System alerts, sensors & machines
Real-Time Analytics& Intelligent Action
Low Latency Universal Messaging
Real-Time Visual Analytics
In-Memory Data & Analytics
Cloud
$£€¥
©2013 Software AG. All rights reserved. For internal use only
20 |
Fast Big Data Platform
Real-Time Analytics
Universal Messaging
In-Memory Data
Visual AnalyticsPRESTO
Stream Big Data to/from any platform or application!
Act fast to limit damage!
Enrich Real-time analytics for
more effective monitoring!
Greater visibility & insight!
A common behavioural monitoring platform to identify all unwanted behaviours from big fast data
Flexible platforms offer hybrid of Buy and Build!
Open IT platforms do more with less!
©2013 Software AG. All rights reserved. For internal use only
21 |
Investigative tools to analyse behaviour in context of the market
©2013 Software AG. All rights reserved. For internal use only
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News event seems to precede a market down turn