New FIX-based technologies from ARQA

The financial markets world is changing towards ever higher speeds of connectivity and ever lower latency of direct sponsored access.At the same time breaking speed limits leads to problems of risk control. The insufficient adequacy of risk management has become a major concern of exchanges and the financial community at large.

When ARQA Technologies first started developing connectivity solutions for direct sponsored access of its clients the risk management component was an important part imbedded into those solutions.

Low-latency solutions based on FIX

ARQA Technologies developed a line of low-latency solutions – a family of so-called FIX2Markets interfaces – tailored for direct integration of various kinds of front-office platforms to exchange trading systems. These solutions are built on the basis of the FIX protocol and facilitate market data delivery and trading operations such as forwarding, cancelling and replacing orders.

Unlike conventional access solutions ARQA’s solutions came with integrated pre-trade control capabilities. The solution for fast pre-trade checks uses QUIK as a risk server and employs a separate module for speedy screening of order flow. The risk server evaluates scenarios and processes relevant market data on the basis of continuous post-trade updates of a trader position. Instead of the conventional and widely accepted “fat finger” approach ARQA developers proposed to retain sophisticated risk management procedures and use the results for pre-trade screening without sacrificing low latency. The QUIK server uses various models or risk evaluations such as SPANlike approach for portfolios, position netting and valuation for margin trading. This approach to pre-trade control requires additional restrictions such as floodgates and a cash reserve but on the whole it results in a more efficient use of resources, flexible trading and better protection against market risks.

The table above shows available solutions, their technical descriptions and internal latency. The figures describing the solutions used by ARQA clients in day-to-day operations (10,000,000 transactions a day) represent average results.

All solutions in the table are designed for low latency and use FIX so that external platforms can easily be connected. The solutions are widely used by ARQA’s clients, some of which are Russian subsidiaries of multinational companies. The majority of interfaces in daily operations serve for connecting foreign platforms to Russian trading venues. The FIX2LSE interface is a recent development and it was certified by the exchange. The traders using it do not need to switch on additional LSE’s risk control.

A solution which stands somewhat out from the line of similar solutions is FIXPreTrade. It is part of the family because it uses the same approach to risk checks, but it can be built into any technological FIX-infrastructure used by a broker. It is a fast pre-trade solution and may be regarded as a FIX proxyservice integrated into broker infrastructure. The advantage is letting intact the existing technology and complementing it with a comprehensive risk control mechanism.

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