Architects of Electronic Trading E-Book

Stephanie Hammer

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Serie: Wiley Trading Series
• Sprache: Englisch

Seitenzahl: 295

Veröffentlichungsjahr: 2013

Beschreibung

Insights that can help you improve your technology edge Featuring contributions from technology visionaries at leading alternative investors, hedge funds, trading firms, exchanges, and vendors, this book covers current trends in trading technology. The book features interviews with the leaders responsible for the technology that is shaping today's electronic financial markets. You'll hear the views of CIOs, CTOs, and other technology leaders on emerging technologies, innovation in the financial sector, and how technology is enhancing markets in ways other than just speed. Their perspectives on harnessing technology to enhance computing power, reduce time to market, bolster risk management, and much more offer valuable lessons for readers. * Includes a wealth of practical insights on how to improve your technology edge * Features interviews with leading technology professionals in the financial industry across an array of asset classes and markets * Serves as a topical guide to the latest developments, enhancements and applications of technology to tackle trading and risk management challenges * Includes insights from top technology professionals on evaluating and adopting technology solutions * Looks at the effects of technology on finance professionals and their businesses as well as the global finance industry generally

Leseprobe

ARCHITECTS OFELECTRONIC TRADING

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ARCHITECTS OFELECTRONIC TRADING

Technology Leaders Who AreShaping Today’s Financial Markets

Stephanie Hammer

Copyright © 2013 by Stephanie Hammer-Krabbe. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.Published simultaneously in Canada.

No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978) 750–8400, fax [phone], or on the Web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748–6011, fax [phone], or online at www.wiley.com/go/permissions.

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Library of Congress Cataloging-in-Publication Data:

Hammer, Stephanie, 1974–    Architects of electronic trading : technology leaders who are shaping today’s financial markets / Stephanie Hammer-Krabbe.       pages cm. — (Wiley trading series)    Includes index.    ISBN 978-1-118-48807-2 (cloth); ISBN 978-1-118-48810-2 (ebook); ISBN 978-1-118-48806-5 (ebook); ISBN 978-1-118-48805-8 (ebook);    1. Electronic trading of securities. 2. Investments—Computer network resources. I. Title.    HG4515.95.H356 2013    332.64’20285—dc23

2013004408

CONTENTS

Foreword

Acknowledgments

About the Author

Chapter 1: Meet the Architects: Agents of Change

A Vision and a Plan

Broad Focus

Great Communicators

Other Important Character Traits

This Book’s Structure

Chapter 2: Business Challenges: Driving New Technology

In Summary

Chapter 3: Laying a Strong Foundation with Transformational Technology

Suhit Gupta, Technology Consultant

Chapter 4: Hardware Acceleration with FPGAs

Jan-Dirk Lueders, CMT Capital Markets Trading, and Robert Walker, xCelor

Chapter 5: GPUs: Affordable Desktop Supercomputing

Gerald Hanweck, Jr., PhD, Hanweck Associates

Chapter 6: Microwaves in Trading: Conquering Resistance

Mike Persico, CEO and Founder, Anova Technologies

Chapter 7: Cloud Computing: Moving toward Acceptance

Ken Barnes, Options IT

Chapter 8: Globalization and Automation: Unfinished Business

Justin Llewellyn-Jones, Fidessa Corporation

Chapter 9: Room for Improvement in Risk Control

Mark Gorton, Tower Research Capital

Chapter 10: Trading Systems: Dealing with Velocity

Kevin Kometer, David Hoag, and Ian Wall, CME Group

Chapter 11: Technology and Alternatives: Benefits of Better Data

William Murphy, The Blackstone Group

Chapter 12: Data Centers: Harnessing Networks

John Knuff, Equinix

Chapter 13: Evolution: The New Revolution in Trading Systems Design

Jürg Spillmann and Wolfgang Eholzer, Eurex Exchange

Chapter 14: FIX: The Power of Standardization

W. Brennan Carley, Thomson Reuters

Chapter 15: Big Data, Big Opportunities

David Siegel, Alan Choyna, and Clara Bonaccorsi, Bottom Line Metrics

Chapter 16: Social Media in Trading: Making Sense of It

Joe Gits, Social Market Analytics

Chapter 17: The View from Emerging Markets, China

Ming Hua, Southwest Securities Company

Chapter 18: Special Focus: The Shortage of IT Talent

Daryan Dehghanpisheh, NYSE Technologies

Conclusion: A Call for Continued Education

Index

FOREWORD

This book deals with my fellow technology leaders and collects their insights on current technology trends in the capital markets. Their opinions are representative of how firms in the contemporary financial markets view technology solutions as a means to address business challenges. As a technologist with a long history in electronic capital markets, my target for this foreword is to provide perspective on technology and its market impacts to serve as a backdrop for future developments.

Taking a brief look at the history of electronic markets will provide perspective on the achievements of technology. It also helps us see where technology has yet to impact capital markets and how, if we fail to deal with issues like legacy systems, technology can cause a dangerous loss in agility that will leave the door open for new entrants.

Technology has been chiefly responsible for a transformation in the financial markets akin to what occurred in the manufacturing industry during the great Industrial Revolution. As in those days, technology is being applied to revolutionize business processes. The results are also similar to the improvements of the Industrial Revolution: better quality at reduced cost and the opening up of new business opportunities. Thus, a logical hypothesis is that information technology holds great promise for our industry going forward.

As an industry, technology has propelled our transformation from one characterized by mainly manual, human interactions toward one that is comprised of engineered processes. Increases in automation have already delivered a host of business benefits and open the door for a stream of improvements throughout the business cycle going forward. With greater automation, businesses become increasingly open to adopt what technology can deliver, in part because the integration work is reduced to a process of fine-tuning. In fact, in trading, much of the execution is already fully automated. The remaining—but very important—human work concentrates on engineering these processes. In this area, technologists and business leaders must cooperate to achieve maximum efficiencies. Technology is not of value in and of itself. It must be applied.

The impacts of technology are not limited to process improvements. Technology has enabled new business models. For example, regulators have promoted competition in markets, which fostered fragmentation, as in the case of the U.S. equity and equity derivatives markets. Certainly, parallel markets can be operated utilizing human processes, though only through technology can these separate pools of liquidity provide such closely aligned prices and deliver fills so rapidly across a number of products and marketplaces. In turn, this means technology enables market quality especially in fragmented market environments.

However, fragmentation has also caused greater concentration on the user side in equity markets. While the number of markets has increased, this higher number has not engendered a greater number of competitive market participants. This is the case because only more sophisticated ones can afford the innovative abilities and capital outlays that are required to achieve the types of technology infrastructures required to compete at the high transaction levels characteristic of today’s equity markets.

In contrast, in non-fragmented markets like futures, market participants are less likely to focus solely on arbitrage. As fast followers in terms of technology adoption, they benefit to a larger degree from lower technology costs. Lower costs, in turn, lower the barriers to entry for new, highly competitive firms that operate just under the elite level. As technology costs continue to sink, more entrants will be able to afford to compete. These new sources of competition will in turn drive elite firms to discover the next technology edge. In a virtuous cycle, technology enables resourceful participants to gain unique privilege for a time, and then acts as a democratizing force within the industry.

The historical “Battle of the Bund” first demonstrated the value of technology in trading in a very public way. It was the quintessential struggle between old and new business processes. It was Deutsche Terminbörse’s (DTB) fully electronic process versus the London International Financial Futures Exchange’s (LIFFE) human-based one. While the support of German banks also was a key factor in the outcome, the automated trade process emerged as superior.

With DTB, trading and post trading were moved to fully integrated, electronic processes reducing human intervention to a minimum. In the heyday of the trading pits, some figures put the percentage of out trades at 5–10 percent of total daily trading volume. Statistically, larger traders were winning the disputes, which is a testament to the fact that electronic markets have introduced a more fair process. Through automation, the markets have experienced a move from subjective to objective. In listed derivatives we have achieved Straight-through-Processing (STP), which serves as a model for the rest of the industry.

Though technology has propelled our industry as well as the world at large, a word of caution: Technologies, including the ones profiled in this book, get old quickly. As in any other industry ours also requires continued technological change of its participants to stay competitive. For some these changes create uncomfortable uncertainties; others hit organizational or budgetary roadblocks, leaving them powerless to implement and/or even stay abreast of technological advancements. In fact, legacy systems from 1970s and 1980s already have the potential to cripple some market participants in that they are developing dangerous dependencies on outdated technologies. A few of the market participants are able to keep pace; others are not, and may either rely on a small number of white-labeled systems or simply fade away due to the increasing cost of complexity of their legacy inventory.

As an industry, if we fail to modernize, we cease to be maneuverable. But this, too, has a positive side. New entrants will have an advantage. In my opinion, the “next big thing” isn’t there yet. We are focusing on the trees instead of keeping the forest in view. This is an open challenge and an opportunity for innovators. The next big thing will include technology; you can be sure about it. Who will invent the next revolutionary business process and render our contemporary equivalent of the steam engine obsolete? He or she will be the next visionary.

Michael Kuhn Former Chief Information Officer, Deutsche Börse Group January 2013

ACKNOWLEDGMENTS

My interviewees are first in line for recognition. Your insights make this book. Thank you for your participation.

Many, many kind people helped me throughout my project. I relied on friends, friends of friends, current and former colleagues, industry acquaintances, and, in some surprising cases, complete strangers for assistance, including interview suggestions, introductions, and more.

The following people deserve special recognition for their help: my Deutsche Boerse and Eurex colleagues, including Michael Kuhn, Michael Peters, Vassilis Vergotis, Stephan Reinartz, Roland Schwinn, Tim Gits, Steve Watling, Byron Baldwin, Axel Vischer, Thom Thompson, Steve Stasys, Tim Levandoski, Michael Hsih, Stefan Engels, Heiner Seidel, Deepesh Shah, Bill Rolfes, and Richard Allen. Other kind friends and industry colleagues include, in alphabetical order, Manuela Arbuckle, Ferry Boeckolt, Galen Burghardt, Professor German Creamer, Alex Gorbokon, Joseph Hosteny, Laura Hosteny, Abhishek Khandelwal, Nick Matic, Julie Menacho, Craig Mohan, Zein Rahemtulla, Todd Rich, Larry Schulman, Will Speck, Carl Stumpf, Stefan Ullrich, Tom Watson, and Jennifer Wilson. Several members of the Women in Listed Derivatives Group also utilized their networks to assist me. Thank you especially to Dorothy Friedman, Mary Irwin, Brookly McLaughlin, and Elisabeth Samuels.

Debra Englander, Jennifer MacDonald, and Tula Batanchiev, thank you for taking a chance on me. Claire New, my production editor, deserves special recognition for her unflagging efforts in ensuring a high-quality production. I greatly benefitted from her tough deadlines and eagle-eyes.

Finally, I would like to thank my husband, Thomas Krabbe, who was simultaneously my biggest critic and most energetic supporter. My daughters, Marlies, age two, and Larissa, now five months old and who was born mid-project, put up with a stressed and sometimes-sleepy mom. It was a good thing for all of us that the majority of work for the book was compressed into just four months.

ABOUT THE AUTHOR

Stephanie Hammer is a professional marketer and freelance writer. She has 15 years of experience in the listed derivatives markets including time as a trader at a proprietary trading firm. She began her career at Eurex Exchange and also served as head of communications for the exchange in Frankfurt, Germany. Stephanie holds a bachelor’s degree from Bryn Mawr College and a master’s degree in international relations from the London School of Economics and Political Science. She is fluent in both Spanish and German. Stephanie lives in Chicago with her husband and two daughters.

CHAPTER 1

Meet the Architects

Agents of Change

■ A Vision and a Plan

The technology leaders featured in this book are agents of change, persuading their constituencies to adopt technology selectively to enhance business processes and advising them on how to do so. They understand the importance of enterprise class technology; they have clear visions and control the resources for their implementation.

The leaders profiled in this book are visionaries in that not only can they identify current opportunities where technology can add value, but also they are capable of imagining how future advances in technology could continue to enhance our businesses going forward. This creative capacity—the ability to couple creativity and technology—is a key attribute.