Mitigating Risk in the
Trading Infrastructure
Vendors need to provide broker-neutral services and take full control
of their infrastructure to minimize latency.
The recent economic turmoil has given
firms like mine reason to reflect, fine-tune and
accelerate plans to deliver new services to the
algorithmic/high-frequency trading community.
Risk management is integral to those plans.
Here follows some principal ways to mitigate
risk through the design of the underlying
infrastructure.
Diversifying Intermediaries
With the recent passing of industry giants with
household names like Bear Stearns and Lehman
Brothers, it is readily apparent that no single
organization holding significant capital is “too
big to fail.”
As a result, many buy-side firms will seek to
diversify their brokerage relationships to help
minimize exposure to the failure of a single
intermediary. In response, vendors must provide
platforms that are entirely broker neutral, allow-
ing the buy-side to establish relationships
with any number of brokers they choose and
to change those relationships as their risk
profiles change with minimal interruption to
trading activities.
62 n SYBASE 2010
Dave Bloom
Vice President,
New Markets and
Strategic Ventures,
Chi-Tech
Reducing Latency
To help mitigate risk, firms must
minimize operational latencies
within their infrastructure so
they can readily identify and
capture liquidity. The quest to
minimize latency is especially
complicated in Europe and Asia,
where the trading landscape
is diverse and spread across a
large geographic area.
Firms providing connectivity
must have full control of their
network infrastructure in order
to minimize delays. Only by
controlling the entire stack—
from the underlying fiber that
provides direct connectivity
 NEW RISK STRATEGIES

To help mitigate risk,

firms must minimize
operational latencies
within their
infrastructure
so they can
readily identify
and capture liquidity.

between colocation sites and

trading venues, through the
optical equipment used to light
the fiber, up to the switches that
provide the handoff to clients
and venues—can all sources
of latency be identified in the
design stage and minimized.
Also important in minimizing
operational latency is the avail-
ability of an ultra-low-latency
market data acquisition and
delivery platform expressly
designed and tuned for the
underlying network. The option
to have market data acquired
directly at each trading venue
and delivered through a single
application programming
interface eliminates another
source of operational risk: the
constant flux of changes to
market data protocols that
result from the evolution of the European
trading landscape. As trading venues mature,
are acquired or move to new matching engine
technologies, only by directly controlling the under-
lying technology stack can vendors guarantee that
clients will be shielded from the cost, complexity
and risk of managing these changes on their own.
Increasing Visibility
To minimize risk, traders will need to know much
more about the trading environment in which they
operate, including the current state of the network
and venues upon which they trade. By having access
to temporal data in addition to market data, trading
firms will be empowered to develop a new generation
of sophisticated algorithms and trading strategies

CAPITAL MARKETS GUIDE n 63

 To minimize risk,
traders will need to
know much more
about the trading
environment in which
they operate, including
the current state of the
network and venues
upon which they trade.

environment, vendors serving

the high-frequency trading
community can provide their
clients with the tools they need
to help mitigate the risks they
face today and tomorrow. n

that are “temporally aware” of the environment, Dave Bloom serves as vice
resulting in increased fill rates and decreased opera- president of New Markets and
tional risk. To provide such temporal data, connectivity Strategic Ventures for Chi-X
providers will need to install in their networks latency Global Technology, a provider of
metrics gear capable of measuring data traversal trading infrastructure technologies
times across the network and the cycle times of the and market data solutions for
trading venue matching engines they interconnect. exchanges and market participants.
Chi-X Global Technology
By enhancing the speed of infrastructure, by (“Chi-Tech”) was created
embracing an open architecture that allows the through the acquisition of
integration of solutions provided by a diversity Cicada, a leading supplier of
of brokers and third-party independent software market data management and
vendors, and by forging ahead in providing dissemination technologies, by
new sources of data related to the trading Chi-X Global in November 2008.

64 n SYBASE 2010