Free Site Registration

Risk Management: In the Eye of the Storm

Biggest Innovators on Wall Street in 2010 |  CASE STUDY: Goldman Sachs Electronic Trading |  After VaR: Q&A with Ron Papanek |  Europe's Challenge |  NSX Cuts In |  Keep Out, At Your Own Risk

Keep Out, At Your Own Risk

December 15, 2010
By Tom Steinert-Threlkeld

The gateway can be supple, as well. The system, for instance, allows brokers to block intermarket sweep orders that are designed to “sweep” the best orders with the best prices from all National Market System venues – and document why they have routed orders to places that might not have the immediately obvious best price. Or, block the sending of market orders at the close at all, if fines are incurred for a cancellation of the order.

Custom checks, like those that support trading in multiple currencies, are developed and spread as needed for individual and then all customers.

These kinds of nuances are support for the argument for using an existing gateway because … it exists. In the case of this Risk Management Gateway, because it’s been around for more than a decade, increasing the number of risk filters that are available. And cutting down any causes of delay between order management systems, risk filters and the matching engines that ultimately execute on the instructions.

“The data structures we use in the risk management system are geared towards very short windows of time being spent on risk checks,’’ said Romanelli.

The risk checks, in this gateway’s approach, are stored in active memory, for instance, so they are live throughout the trading day and adjustable as needed. “The way we store risk checks in memory is something that we’ve done to optimize” efficacy and speed at the same time, said Tuskey.

The gateway also is set up to “know” all the risk checks ahead of time that match a particular client, Tuskey said. That means the system can then do a lookup for those checks quickly and run through them “at the machine speed.”

The system can also set itself apart by how it checks long strings of information, such as a list of stocks that a particular company that a broker is sponsoring is restricted from trading in. The gateway uses technology that can recognize long strings of characters, even if it relies on only a few to figure each out. This is akin to the T9 system and other predictive technologies used in cellphones to turn a minimum of typing into full messages.

All in all, the maximum delay, Tuskey and Romanelli say, at this point is under 100 millionths of a second and headed lower. Even at current rates, the time taken for risk checks “is incredibly small compared to overall latency” in trading systems, Boytim contends.

But it’s hard to compare exactly where to measure the trips. For Tuskey, the natural demarcation point is the time it takes for a message to hit the network interface card at the entry point of a risk gateway to the time the message hits the network interface card of a venue’s order-matching engine. No universal definition or standard, however, has been established.


Two incidents in the past year illustrate the hazards, however, of expecting a risk gateway to manage risk, on its own.

Download the Complete IMPACT REPORT