The Gateway to Algorithmic and Automated Trading

Tech's message

Published in Automated Trader Magazine Issue 22 Q3 2011

In the first of a new series of interviews in which key figures address the technology decisions we have to make - today - to ensure the long-term survival of our businesses, Carl Ververs, Head of Product Development at RTS Realtime Systems, talks to Automated Trader about today's challenges, tomorrow's solutions, the questionable goal of system-wide speed, and where to look for tried-and-tested answers to the hardest long-term tech questions.

AT: Are there certain triggers that you look for with regards to a technology or a process that would make you think - yes, that's the one for us?

Carl Ververs: There are a few overarching themes throughout financial services, that are especially true in high-speed trading. One thing is that no day is the same. No trading strategy lasts for more than about a quarter, if that. Any algorithm that you have made typically applies to only +/-3% of the market. So you should be in a position to deploy new algorithms, if not at the drop of a hat, at least within the timeframe of a month or so. By 'deploy' I mean release into active trading. To do this, you should also be able to test drive your P&L, your risk exposure et cetera, in a lab environment, with those algorithms, on information that you already have.

There are two challenges now. First of all, you have to be able to change the guts of your system within a very short time frame. You also have to be able to test drive the proposed new brain in a controlled environment that is very lifelike.

Now. Most systems have been cobbled together over years of abuse into a sort of Rube Goldberg system - the equivalent English expression would be a Heath Robinson system. Many trading systems I've seen are like that. That doesn't just impede your ability to move; it completely blocks it. We refer to it as technical debt. Unless you pay that technical debt off, you are not moving. So this creates a situation where you can't change the brains of your trading operation fast enough to keep up with market opportunities.

Secondly, because systems are so closed and so tightly coupled, the notion of test driving things, with lifelike information, is out of the question. That's the situation we have. After about fifteen years of electronic trading, you might think that would have been solved. There have been many attempts, but from what I have seen, they have typically attacked the problem from the wrong angle.

You need your trading systems to be componentised while still fast enough. This means that your algorithms and systems should be pluggable, very much like a games console. Additionally your system needs to have external taps in which you can loop through new components without impacting the core system. It's like audio, where you might have a plug-in to a mixer: you can plug whatever you want into the mixer, and it doesn't affect the mixing technology at all. You need to be able to feed certain pieces of data, say, into your test systems and watch what that does to your volatility calculations or risk exposure, et cetera. That requires open architecture but unfortunately open architecture is typically slower than you need.

Carl Ververs

Carl Ververs

Here's the solution, which dates back to the late nineties. The key is that you apply the right level of coupling at the right points. For instance, to have self-describing market data is probably not a good idea because you just can't keep up with the speed. Slower data, like volatility, risk or real time P&L, is the kind of stuff you don't need by the micro-second. You can have a couple of seconds and that's probably fine. A few minutes is even fine. Most companies still go by a daily P&L or risk exposure. Anything faster than that is already a gain.

That creates an opportunity to apply the right level of encapsulation and coupling at the right points. If you want to have an electronic eye, you site it literally on an exchange machine, or right next to it with a really short wire. Nothing in that is pluggable, of course. However, the further you go away from that cherry-picking notion and more into algorithmic trading, where someone has to think about what to do even if it's just for a few nanoseconds, the coupling needs to decrease. That gets us into the kind of architectures that one should be looking at and it's the same at RTS.

From a very tightly coupled architecture we are revisiting the coupling at the various spots. We have extremely tight coupling at the points where we must, and we start to loosen it where we can. It needs to be like pieces of a digital audio studio in the way you can put in your plug-ins in the order you want and you can set them up and you can route information the way you want. I keep on coming up with this idea of a digital audio workstation like ProTools; the trading system architecture should be just like that. You should be able to plug things in as it suits you and get the information through in the way that serves your business.

AT: Do you think that the concept of things becoming too tightly coupled has been an inevitable by-product of people trying to squeeze speed the whole time?

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