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From front to back August 28, 2008

Posted by James Webster in : finance , 1 comment so far

I have just finished reading Michael Simmons’ Securities Operations: A Guide to Trade and Position Management. Having been primarily focused on the front & middle office elements of securities trading, ie. trade capture & risk management, I wanted to find out more about back office functions; clearing, settlement, corporate actions, safe custody.

Anyone wanting to do the same could do a lot worse than picking up this book. It is well written and clearly describes the processes involved in ensuring that the correct assets are exchanged… the primary goal of markets in the first place. It is also an engaging read which sets it apart from many of its peers on the financial services bookshelf which can be dryer than the Sahara.

My suggestions for a next edition would be to consider settlement conventions and processes for OTC derivatives, especially as the settlement & counterparty risks here have ballooned along with the volume of exotic derivative trades that are now made. This is a very topical issue, see ‘Wall Street group issues recommendations for market reform’ on Finextra. In fact it seems every week sees another press release from some trading software vendor, bank consortium or custodian about their efforts to enable quick matching and settlement for CDS and other exotic derivatives.

Back in the world of plain old bonds and shares, it would be good to see coverage of the increased number of trading venues and their associated central counterparties, for example the recently launched pan-European Turquoise and EuroCCP.

The book mentions the Market Data Definition Language, or MDDL, as a burgeoning initiative (at time of publication) to provide an industry standard data format for static data and corporate actions messages… at the moment however the website MDDL.org appears to be somewhat stagnant. It’s quite possible that the implementation of a standard format that reduces their customer’s switching costs isn’t high on the agenda of Thomson Reuters, Bloomberg, et al, hmmm?

Anyone building a settlement system might want to take a look at WIFE, an open-source Java SWIFT messaging library.

Finally, back office staff might take some comfort in the FSA’s latest warning;

The Financial Services Authority has warned UK investment banks to improve their risk pricing procedures and stop firing middle and back office staff involved in crucial valuation control functions.

Monte Carlo on EC2 August 8, 2008

Posted by James Webster in : finance, development , 1 comment so far

Via TheServerSide.com I came across Max Gorbunov’s (Grid Dynamics) report on the scalability of GridGain on Amazon EC2. Having previously thought about whether hedge funds might find EC2 a quick way to scale up batch processing of derivatives risk reports, I found the following EC2 limitation discovered by Max and his team interesting:

Our second problem turned to be the default maximum number of running instances per user – 20. Since we were going to run grids much larger than 20 nodes, we needed to override the default limit. It took several steps and a few more days to negociate with Amazon EC2, but eventually, we were granted the right to run up to 550 nodes. It seems that the business process of requesting a large amount of nodes is still not very well-defined by Amazon.

So there is still an opportunity for another cloud computing player to focus on massive scalability only. IBM perhaps?

Grid Dynamics are also doing some interesting work in their Convergence project which aims to bring together compute and data grids. Although most vendors make the claim that their products act equally well in both roles most products seem to be strong in just one only… and most investment banks have installed both a cache (i.e. data grid) and a grid.

RESTful market & static data caches August 4, 2008

Posted by James Webster in : development , 2 comments

An architectural pattern that I have observed a few investment banks implement is a distributed memory cache accessed via a RESTful front-end over HTTP for providing access to market data (e.g.. stock prices, interest rate curves, or derived values like volatility surfaces & correlations) and static data (e.g. counterparty details, settlement defaults). The distributed cache can be ‘easily’ scaled to hold massive data sets and the front-end allows the data to be accessed in a technology agnostic fashion, as long as the client can speak HTTP. These caches tend to use a commercial product such as Oracle (nee Tangosol) Coherence, Gigaspaces Enterprise Data Grid or GemStone GemFire. The REST layer is written in-house however. In the open-source world it appears that Ehcache now has a ‘RESTful, resource-oriented’ layer. Given the growing popularity of REST versus WS-DeathStar its possible that Coherence et al will provide some out-of-the-box support for REST as well. Microsoft might consider pairing Velocity with ASP.NET MVC?