RETAIL e-FX PROVIDER
On how the latest margining systems cater for new customer configuration trends, which are evolving towards multiple sub-accounts, allowing users to hedge across accounts together with expansion of customer groupings for higher level monitoring of risk, Nelson says: “As brokers look to offer margin relief to their client base through multi account (or multi-ECN) hedging, the margin system must be integrated with all accounts and act as a warehouse consolidation for all of the brokers trades. Tis includes both client facing trades and the wholesale trades.
“Once the warehouse is established, the margin solution will manage credit risk and collateralised trading in real time across all asset classes, have multi- dimensional margin charges (eg Futures, Gamma, and Vega), and be intuitive to the client. Providing additional buying power and the ability to offer new products to the client base enables further trading activity,” he says.
Getting up and running
With demand for increased functionality in FX margining increasingly dependent on technology, the quickest route to establishing a state of the art margin FX solution clearly depends on the position of the market, states Behnstedt. “As a market maker I would strongly suggest building a tailor-made solution. It requires strong leadership and a clear vision of what the market maker wants to achieve, to build a good solution. As a market user bank or broker, I would strongly suggest going for a turnkey solution and integrating the processing into the existing system landscape.”
Brand says the quickest routes to establishing a state of the art margin FX solution are to find existing technology solutions, and integrate them into existing platforms. “Proprietary technology may be more cost effective, but would take time to design and build,” he says.
Biezup remarks: “Speaking from a time to market perspective, it is always better to look in the market
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and find a solution that best fits your needs, and develop the missing pieces. Tere is no reason to reinvent the wheel for the basic mechanics. A firm should focus their time and effort on building the intellectual property that will give their organisation that competitive advantage.”
More complex requirements
On which margining technology providers are developing turnkey solutions that can manage the risks associated with complex algo-driven and high frequency trading strategies coupled with higher trade volumes, without sacrificing the speed of execution and the speed of margining calculations required, Biezup says there are only a handful of third party providers who offer solutions in this space. “From that set, only a sub-set can handle the large volumes associated with algo driven, high frequency environments. However, high volume is only one piece of the puzzle.
“Systems must also be able to handle large bursts of transactions in a very short period of time,” adds Biezup. “It is one thing for a system to handle 500,000 trades in a day, but it is also important for that
same system to handle 50,000 trades in a five minute window.”
“Algorithmic and high frequency trading has pushed banks and prime brokers to consider solutions that do not compromise the speed of liquidity and execution services offered to their clients, yet that give the bank the risk management protection needed to ensure they are not over extending credit and subject to predator activity,” continues Biezup.
“Tis has been tackled by having the front end execution platforms make a pre-deal call back to the enterprise credit and collateral system via a real time API. Tat model works well up to a certain point, but to avoid risk of introducing latency, this is being overcome by supplying starting trading activity ranges to the front end, that work as a place holder over an interval or range,” concludes Biezup.
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