High Frequency Trading &

Clearing and Settlement

Presentation to EU Commission CESAME 2

Tuesday 2 March 2010

Steffen Gemuenden CEO & Founder

Mark van Vugt Executive Board Member

Ed van den Brook Solutions Manager

Agenda

1.

RTS Introduction2.

Our Customers

3.

Evolution of Trading in the last 20 years4.

Definition of High Frequency Trading

5.

Risk Management & Limits6.

Impact on Settlement & Clearing

7.

Q & A

Who is RTS…..

RTS Realtime Systems Group

RTD TangoRTD Tango

RTDRTD

RTS Trading ApplicationsPerformance

Stability

Connectivity

Time to Market

Single Solution

Multi Asset Class

Buy / Sell –

Side

Integrated Risk Management

Automated Tools

Algorithmic Trading

High Frequency Trading

ASP Hosting

eRTDeRTD

System Architecture

7

` Connectivity Central Comm

Server Front-end’s

ASP Hosting

8

CMECBOTICENYMEXISEActive FinancialARCACBOEDGCXDMEeSPEEDHotspot FXFXMarketSpaceNYBOT

Frankfurt

Chicago

New YorkLondon

EURONEXTLIFFELSECMECHI-XSwiss ExchangesBAXTERTURQUOISENYSE Arca

EuropeBATS TradingNasdaq

OMX

EUREXXETRAXetra

ViennaSwiss Exchanges

= Proximity Hosting

SGX Der. (plan Q4 09)SGX Cash TSE Fut. TSE CashTSE Der.TocomTFXHK DerivativesHK CashMCX, NCDexNSE, BSESFEASX

SingaporeTokyoHong KongIndia

RTS net

ASP Hosting

RTS Realtime

Systems Group

RTS Offices

RTS Offices

Our customersTraditional Investment Banks & BrokersProprietary Trading FirmsMarket MakersClearing FirmsExchangesHedge FundsStatistical Arbitrage Groups

Our customers

Evolution of Trading in 20 years

The evolution of trading in 20 years

The evolution of trading in 20 years

Definition of HFT

Definition of HFT“The natural evolution of trading”

From floor to screen (Step 1)From screen to Automation (Step 2)From Automation to Algo Trading (Step 3)From Algorithmic Trading to High Frequency TradingHFT Trading, a special form of Algo TradingComputer models instead of human beings

Algorithmic Trading UsersAnonymity 22%Cost 20%Trader productivity 14%Reduced market impact 13%Speed 11%Ease of use 7%Execution consistency 6%Customization 4%Other 3%

Source: “The Trade” Annual Algorithmic Survey

20

RTD Tango

21

RTD Tango

Tango paradigmTake your trading strategy and execute in proximity to the exchange(s)Experiment with trading ideas -

accurate simulation safer than liveCan you describe it? Then you can build it

Advantages of Tango Fast time to marketLow latency platformShort product familiarization timeframeStandardized exchange interactionIntegrates to risk platform (e.g.. limits / no short selling in specified stocks)Backtesting capability both in form of simulation and using collected full market

Advanced integrationMathWorks / Excel add-in for external modelsIntegration to third party pricing / news feed data

HFT Traders

HFT Traders

The race to “zero”

latency

HFT Traders

HFT Traders

The retail investor perspectiveHFT - LiquidityHFT - Very small Bid/Ask SpreadHFT - Co-Location advantagesHFT - Capital investmentsFake liquidity ???HFT Impact on large market movementsLiquidity disappears on large movements

The retail investor perspective

Who are the players

Who are the players

Traditionally Investment BanksProprietary Trading FirmsLiquidity ProvidersArbitrageursHedge FundsStatistical Arbitrage GroupsSmall very sophisticated trading companies

Requirements

Large investment in technologyProfitable algorithmsLarge Capital investmentsHigh trading limitsExcellent IT staffHigh-End Quants

32

Risk & Limits

Risk Management & Limits

Risk Management & Limits

Risk Management & Limits

Risk Management & Limits

37

Pre-trade hard limitsOrder Sizes

Overall Positions

Cash Limits

Margin Limits for Derivatives

Trading permissions

Market access limits

Spread Limits

RTD Risk Management – Set limits

38

Post-trade soft limitsReports on maximum loss intraday (value)

Reports on maximum long and short positions (sum)

Presented to risk user as warnings to trigger user interaction

RTD Risk Management – Set limits

39

Monitor order bookView active orders per customer or per exchange

Filter / sort by exchange / instrument

Interact as required to delete orders / deactivate from marketplace

RTD Risk Management – Monitor order book

40

RiskLimitViewMonitoring Limits Realtime

Limit violations displayed

Monitoring daily limits and P&L

RTD Risk Management – Monitor P&L

Risk Management & Limits

Risk Management & Limits

Impact of HFT on Settlement & Clearing

Impact on Clearing & Settlement

Impact on Clearing & Settlement

Q &A