FEATURE
profit and loss – are important because you have to be able to react to market prices. But it is a more volatile market currently so the way that banks are able to distribute prices to their clients is important because it must be suited to their trading styles.”
Te adaptation to different customer behaviour is seen in the frequency of hits that a bank is willing to accept from each customer, how much information is shared by the clients (as is the case in a quote-driven trading model), the throttling aspects, the provision of a last look facility and many other things that were previously done on the phone but now must be done through the use of intelligent technology, says Gozlan.
“I don’t think it is a problem of a fundamental change in customer behaviour but the fact that there are more different types of customer and the fact that everything is being done faster and in a more competitive environment. Previously when everything was voice-based you could give everyone the same price and then we went to a tiered approach of gold, silver and bronze for the different customer types. But now, if you want to extract maximum value from the market, you need hundreds of different tiers in your distribution engine.
“Real-time hedging must be based on clever analysis of the risk and the price you give to the client has to be able to adapt to their changing behaviour and the changing prices in the market. And all of this has to be done fast enough or else you will not end up with the trades that you want. But you cannot have all of this capability acting on a high frequency in one machine. Te most important point in building a liquidity management system is that it must be properly designed.”
Part of this intelligent design is the correct use of technology, says Gozlan, particularly something like CEP. “Complex event processing is a great technology for developing a clever calculation engine but it is not a trading technology. Te idea is to have lots of price feeds going into the CEP engine, then embed some rules within it that enable it to calculate the different margins involved for each client before sending prices out. But CEP should not be used as a trading platform or to execute trades because it is essentially an analysis tool.”
Holistic approach
Te other key to developing a more holistic approach to liquidity management, says Gozlan, is to make
58 | april 2011 e-FOREX Harry Gozlan
“Liquidity management is a whole job in itself, so it is not something you can approach with an improvised attitude.”
greater use of outsourcing and external hosting services on offer. Tis makes it easier for banks to set up a centralised approach within their own set-up and rely on external providers to ensure all the necessary connections to external sources of liquidity. “It enables those banks that are in the very highest tier to solve all of their networking issues without having to rely on a large and well-resourced internal IT department. And if these externally hosted components are able to sit closer to the connectivity points and if they can be controlled by very precise executions, then the liquidity management will be more efficient than if everything was done through an internal network,” he says, “Te larger banks may still be able to cover all of this internally but for the smaller banks, such an approach is almost mandatory. Liquidity management is a whole job in itself, so it is not something you can approach with an improvised attitude,” Gozlan concludes.
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